Cost Plus Insurance Evolves – What A Difference 5 Years Makes


“Don’t bother doing something unless your radically different from the competition” – Richard Branson

By Bill Rusteberg

Reference Based Pricing, or Cost Plus Insurance has evolved over the past seven years from simply re-pricing claims based on established benchmarks such as Medicare pricing schedules, to a number of evolving hybrids. A Cash Pay Health Plan Option is one, quickly gaining market attention among health care revolutionaries.

The concept is simple. Full cash payment is made at the point of service based upon a mutually agreed price.

Cash payment for claims at the point of service brings significant savings. There are no claims to file, no audits are necessary, no legal representation needed and medical care givers don’t have to chase accounts receivables. It’s a win win for the consumer, the plan sponsor and the medical provider community.

Recently we implemented a Cash Pay Plan Option with one of our Reference Based Pricing clients. Our first claim was for a knee replacement. A negotiated global fee of $17,400 included hospital charges, anesthesiologist, surgeon and follow up care.

How does this payment compare to what Reference Based Pricing, Cost Plus Insurance schemes typically paid back in the day, and continuing today as well?

Perhaps a clue can be found in an email we received in 2011 from one of the early adopters of Cost Plus Insurance.



Bill, I think one of the ways to assess XYZ’s fee structure might be to look at what percentage over cost we end up paying by adding the XYZ fees  to the Cost plus 12%.  We don’t always know whether their claim adjudication method is cost plus 12% or Medicare plus 20%, and that’s a bit of a problem.  But it could be figured both ways.

For example, in the claim for the knee replacements, the claim cost paid to BHS was $47,350, and XYZ’s fee was $17,150. Interestingly, this XYZ fee is 36% of what was paid to BHS.  That, in and of itself is outrageous.

But, doing the math here, if $47,350 represents either 112% of cost or 120% of Medicare, then by adding the XYZ fee in (total claim cost $64,500), the total claim would be either 152.5% of cost or 163% of Medicare.   

Now that may still be cheaper than a PPO that gives us, say, a 45% discount off BC’s, but it’s a far cry from the 112% of cost or 120% of Medicare.


Back in 2011 XYZ’s audit/patient advocacy/legal defense fees totaled $17,150 (12% of billed charges). In comparison the entire surgical procedure under Cash Pay was only $17,400. The fee to negotiate the Cash Pay Option of $1,250 is included.

Comparing these two claims, which are five years apart, the Cash Pay Option proves a significant savings of over $47,000.

It’s in a plan sponsor’s best interest to consider quality options. Cash Pay Plans are going to play an important part in the continuing evolution of Reference Base Pricing, Cost Plus Insurance strategies.

Related Article: The Phenomenon of Reference Based Pricing – Are Cash Pay Plans Next?

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From Cash Pay Proponent & Health Care Entrepreneur

While RBR is obviously an effective strategy for reducing costs, in a way employers are simply trading one outrageous set of fees, for a somewhat less outrageous set of fees.  Any business model that requires a percentage of savings in the current environment is going to create the same dynamic. It is why we have not pursued that type of pricing. If we are really going to control costs we need transparency from all players in the market.  Hopefully we will be able to create a more efficient, market based system for establishing prices – both of providers and vendors.