A 250-employee company gets a double-digit renewal. Its broker shops the same carriers, adjusts the deductible and presents another increase. Then a consultant suggests a different approach: stop relying exclusively on a traditional PPO’s negotiated hospital rates and use reference-based pricing.
It sounds promising. But what happens when a hospital refuses the plan’s payment and sends an employee a bill?
Direct answer: Reference-based pricing (RBP) is a payment strategy in which a health plan sets reimbursement using an external benchmark—often a multiple of Medicare rates—instead of relying solely on a conventional insurer’s negotiated network discounts. For some self-funded employers, it may reduce provider spending. But it is not a guaranteed savings strategy, and employers must carefully evaluate balance-billing exposure, provider access, member advocacy, stop-loss terms and legal compliance before adopting it.
Why Employers Are Considering It for 2027
On September 2, 2026, Marsh reported that more than 1,800 surveyed employers expect total health-benefit cost per employee to rise 8.2% in 2027 after planned cost-reduction measures; respondents estimated 11% growth if they made no changes.[1]
For employers with 100–500+ employees, another annual cost shift can undermine employee affordability and recruiting. That is why some companies are asking whether the price paid for care—rather than only the insurance premium—can be addressed.
RBP is one potential answer. It is also one of the funding and network strategies where implementation quality matters most.
How Reference-Based Pricing Works
Traditional PPO network pricing
A conventional PPO negotiates contracted rates with hospitals and physicians. The employer’s plan pays claims based on those rates, subject to the benefit design. Employees generally receive predictable in-network access and contracted-provider protections.
Reference-based pricing
An RBP arrangement may establish a benchmark such as a specified percentage of Medicare reimbursement for a covered service. The administrator uses that benchmark to determine the plan’s intended payment, subject to plan terms and applicable law.
The benchmark is not a government mandate on the provider. A hospital may reject it, negotiate a different amount, refuse non-emergency appointments or bill the member for an unpaid balance where legally permitted.
Some arrangements use RBP for hospitals only, some for broader medical services, and others combine reference pricing with direct contracts or traditional networks. Employers should evaluate the actual design rather than the label.
A Hypothetical $100,000 Hospital Bill
Suppose a hospital bills $100,000 for an eligible procedure. A traditional PPO arrangement allows $60,000. A reference-pricing formula initially calculates $42,000.
That $18,000 difference is not automatically an $18,000 employer saving. The hospital may negotiate, dispute payment or seek the difference from the patient. The administrator may incur advocacy and settlement costs. Plan design and applicable legal protections may change what is ultimately owed.
A credible financial analysis should use actual final paid amounts, not simply initial reference-price calculations.
The Biggest Risk: Balance Billing
Balance billing occurs when a provider seeks the difference between its charge and the amount paid by the plan, beyond permitted patient cost sharing.
The federal No Surprises Act protects patients in many emergency situations, certain non-emergency services involving out-of-network clinicians at in-network facilities, and covered air ambulance situations. But those protections do not eliminate all balance-billing risks.[2]
In particular, federal guidance explains that for a plan without a participating-provider network, the Act’s protections for emergency services and air ambulances still apply, while its non-emergency protections tied to an in-network facility generally cannot be triggered in the same way.[3]
That is a crucial distinction for network-free RBP arrangements. Employers should not accept a blanket statement that the No Surprises Act makes balance billing impossible.
What employee advocacy must actually provide
Before signing an RBP contract, ask who answers the employee’s call when a provider refuses payment, whether the vendor negotiates directly, who funds settlements, whether legal support is available, and what happens if an employee faces collections or delayed care.
Request the administrator’s actual data on balance bills, resolved disputes, average resolution times, provider refusals and employee complaints. Definitions and denominators should be consistent and independently supportable.
Is RBP Right for a 100–500 Employee Company?
It depends more on local healthcare markets and implementation than on employee count alone.
A geographically concentrated employer with several accessible hospital systems may have a different experience than a rural employer dependent on one dominant hospital. A multi-state company may encounter substantially different provider reactions across locations.
Employers with limited cash reserves, sensitive recruiting needs or an HR team already overwhelmed by benefits escalations should give particular weight to member disruption and administrative risk.
RBP may deserve evaluation when the employer is already self-funded, has usable claims data, can analyze provider utilization by location, and has a well-supported advocacy and direct-contracting strategy.
What Does RBP Mean for Stop-Loss and Captives?
For self-funded employers, a lower projected medical-claims cost is only one part of the decision.
Stop-loss carriers may have specific requirements for recognized claims, reimbursement, provider settlements and contract terms. The employer should verify whether negotiated settlements and balance-bill resolutions are eligible expenses under the policy.
Captive participants should also determine whether the captive permits the RBP arrangement and how disputed claims affect shared risk layers. Neither stop-loss nor captive participation automatically guarantees that all provider disputes are covered.
A Practical 250-Employee Evaluation
Imagine a hypothetical company with 250 employees and $2.5 million in annual health-plan expense. A vendor estimates that reference pricing could lower medical claims by $200,000.
Leadership should not book $200,000 in savings.
Instead, ask the broker to prepare a comparison that includes expected final paid claims, network or administrative fees, member advocacy, provider settlement reserves, implementation costs, stop-loss changes, employee travel and access considerations, and an adverse-case scenario.
The company might find that a carefully designed hybrid approach is attractive. Or it may conclude that preserving the PPO is worth the premium. Both can be rational outcomes.
Seven Questions to Ask an RBP Vendor
Which services use reference pricing, and which remain contracted?
Which local hospitals and physicians have accepted or disputed your payments?
How often do members receive balance bills, and how are disputes resolved?
Who pays negotiated settlements and legal expenses?
How are emergency and non-emergency No Surprises Act protections administered?
Will our stop-loss carrier recognize all eligible claims and settlements?
What are the net savings after fees, settlements and implementation—not just the difference between billed charges and benchmark payments?
Frequently Asked Questions
Is reference-based pricing the same as self-funding?
No. RBP is a provider-payment methodology. It is most commonly evaluated within self-funded plans, but self-funding can also use conventional PPO networks or direct contracts.
Does reference-based pricing use Medicare rates?
Many RBP arrangements use a multiple of Medicare reimbursement as a benchmark. The actual formula, services covered and payment rules vary by contract.
Can employees be balance billed under RBP?
Yes, in circumstances where balance billing is legally permitted. The No Surprises Act protects certain services but does not universally eliminate balance billing, especially for non-emergency services at out-of-network facilities.
Does RBP always save money?
No. Actual results depend on provider responses, negotiated settlements, claims mix, administration, employee access and other factors.
Can an employer keep a PPO and still use reference pricing?
Some hybrid arrangements combine traditional contracted networks, direct contracts and selective reference pricing. Availability depends on vendors and plan design.
Is reference-based pricing suitable for 100 employees?
It may be worth evaluating, but company size alone is not sufficient. Local provider access, financial resilience, member advocacy and stop-loss compatibility are especially important.
The Bottom Line
The question for a CFO is not simply “Can we pay hospitals less?” It is “Can we improve our total healthcare economics without exposing employees to unacceptable billing disputes or disruptions in care?”
Reference-based pricing can be one option in a broader self-funded strategy. It should be compared with conventional PPO pricing, direct contracting, plan design, pharmacy management and captive options—not presented as a universal solution.
Proper Benefits Brokerage helps employers with 100+ employees evaluate funding structures, provider-payment strategies, stop-loss protection and employee experience before committing to a renewal.
Request an employer benefits strategy review to assess whether your existing health plan or a carefully structured alternative better fits your workforce and budget.
Footnote Sources
[1] Marsh, September 2, 2026: Employers expect health benefit costs to jump 8.2% in 2027. https://www.mercer.com/en-us/about/newsroom/employers-expect-health-benefit-costs-to-jump-in-2027/
[2] Centers for Medicare & Medicaid Services: What are the new protections? https://www.cms.gov/nosurprises/consumer-protections/What-are-the-new-protections
[3] U.S. Department of Labor, FAQs About ACA and No Surprises Act, Part 55: Official guidance on plans without provider networks, including reference-based pricing. https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/affordable-care-act-and-no-surprises-act-faqs-55.pdf
Additional consumer explanation: U.S. Department of Labor, Avoid Surprise Healthcare Expenses. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/avoid-surprise-healthcare-expenses