WellPoint rolls out program with cost ceilings for procedures

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Indiana employers, desperate to curb the cost of their workers’ health benefits, are taking a new look at an old idea.

Indianapolis-based WellPoint Inc. rolled out an initiative in late June called reference-based benefits. The program helps employers establish a maximum fee they will pay for certain tests and procedures. If workers go to health care providers charging more than that price, the employees have to pay the difference.

WellPoint has partnered with San Francisco-based Castlight Health, which provides an easy-to-use software program to provide a company’s workers with price and quality information for health care providers.

Reliable price and quality information has never really been available before. But Castlight’s tool, which has already been adopted by more than a dozen of Indiana’s largest employers, gives the reference-pricing idea a better chance of working now.

“Who’s interested? The answer is, everybody,” said Dave Kelleher, executive director of the Employers Forum of Indiana, a consortium of large employers, hospitals and health insurers.

He added, however, that the large employers he’s talked with are being cautious and aren’t likely to sign up this year.

WellPoint is touting that reference pricing saved the California Public Employees Retirement System 19 percent on joint-replacement surgeries in a one-year trial. It thinks it can achieve similar savings for employers in the 14 states in which it operates Blue Cross and Blue Shield plans, including Indiana.

“Reference-based benefit designs allow employers to preserve a large network and high-quality care options for their employees while also enabling the employer to achieve significant savings on benefit costs,” Rob Hillman, president of WellPoint’s Indiana subsidiary, Anthem Blue Cross and Blue Shield, wrote in an email.

He noted that Castlight’s software tool has “shined a light” on health care prices that can vary wildly within the same city—and even within one insurer’s network.

“This wide variation is a growing source of frustration among employers,” Hillman wrote. “All of these factors combine to make reference-based benefits attractive to employers right now.”

WellPoint has also been pushing to get lower costs from hospital systems by forming networks that exclude some of them. But such “narrow network” health plans will be a tough sell with employers, because they fear the restriction of choice would spark a worker backlash.

Reference pricing may be a way to achieve lower prices without restricting workers’ choices—provided that employers communicate the idea effectively to employees before they get surprised by a huge bill because they went to a higher-cost provider.

The reference pricing concept has been used by several state-run health plans in Europe for 20 years. It has also been used by some American health insurers to hold down costs on prescription drugs.

Going even further back, reference pricing is similar to the “scheduled benefits” that were central to health insurance plans from the 1950s to the 1970s.

Such plans gave their members a list of the amounts the insurer would pay for various procedures. Any charges from doctors and hospitals that exceeded that amount had to be borne by the patient.

The system worked then, because hospitals and doctors could quote prices fairly easily. But now, after the federal Medicare program and private health insurers have erected an indecipherable system of ICD-9, CPT and DRG codes between providers and patients, getting price information is nearly impossible.

Castlight Health saw potential to revive the reference-pricing idea after the success achieved with reference pricing by California-based grocer Safeway. Then Castlight conducted market research that showed a huge number of employers were considering trying the same thing.

Castlight is now talking to as many as 50 employers about implementing reference pricing, including some in Indiana, said Peter Isaacson, the company’s chief marketing officer. He said employers can do reference pricing on more than 900 types of medical services, but most focus initially on lab tests and imaging scans.

“We think it’s going to become increasingly common over the next few years. Because it’s an obvious way to continue to drive savings,” Isaacson said.

Sheri Alexander, director of employee benefits at Indianapolis-based insurance brokerage Gregory & Appel, thinks WellPoint and Castlight will attract some reference-pricing customers in time to launch in 2014. The first prospects may be midsize employers that have already signed up for Castlight’s pricing software.

“In concept, when I’ve discussed reference-based benefits with employers, they are very intrigued provided employees have the tools to evaluate prices.”

Larger employers are more likely to wait until 2015, she said.

Denny Darrow, deputy director of personnel for the state of Indiana, which rolled out Castlight’s service on June 1, said the state intends to get its employees using the service first, before taking a serious look at reference pricing.

“We are always looking at options to spend health care dollars in the most meaningful way, and referenced-based benefits certainly show a lot of promise,” he wrote in an email.


  • full transparency from Hospitals and Physicians on all items charged at Hospitals and for Procedures
    Before a patient goes into a hospital for a general procedure, they should know up front what it will cost them outside the insurance payed for amounts. A knee or hip replacement are pretty much standard and should be within reason an up front estimate of cost, not an unknown. The truth of the matter is that Physicians and Hospitals must be up-front with their hourly charges, overhead costs, the full line by line charges to the insurance and patient up front as much as possible and not surprises like too many tests, too many charges for instance the markup of a hip or knee replacement by the hospital from a manufactured cost of 5,000 dollars to a markup to 10 to 15000 dollars by the hospital.
  • limit the Hospitals and Physicians Prices
    A better idea, rather than limiting the cost of the procedure and having the patient shop around, just standardize the pricing across all Physicians, Hospitals, etc. and there is no worry for the patient at all. All Physicians, Hospitals, Medical Providers have to adhere to a pricing limitation imposed by insurance and the patient pays nothing.
  • Interesting
    As you note, the effectiveness of this pretty much hinges on price transparency, and there's a long way to go on that. It will be interesting to see what moves the medical industry will make to continue to hide price data in the face of efforts to improve transparency. Knowledge is power and will not be yielded without a fight.
  • comparison "shopping"
    it seems serious price checking is all well and good for the bottom line, but only if you have 24/7 access to the internet

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