F-150 vs. G-Wagon: Why reference-based pricing brings balance to health care

In 1929, American families spent the most money on groceries and housing, according to a recent New York Times article. Fast forward to today, and health care has overtaken every other expense as the number one cost burdening American households. That’s not just a statistic – it’s a flashing warning sign that the system is unsustainable.

But there are other options; they’re just not widely recognized or understood. I fundamentally believe that Americans deserve the freedom to choose how they access and pay for health care, just like they can choose between a luxury car or a more affordable, reliable vehicle.

Current coverage models: PPOs 

According to 2024 data from KFF, nearly 48% of individuals enrolled in employer-sponsored health plans are covered through preferred provider organizations (PPOs), making PPOs the most popular health plan option in the workplace today.

Originally introduced in the late 1970s, PPOs were designed to meet growing demand for greater flexibility and provider choice. These plans contract with networks of doctors, hospitals and clinics, offering lower costs when members use “preferred” providers.

At first, PPOs saved money by negotiating discounted rates with a select group of providers. But as consumer demand for choice grew, networks expanded, often to include nearly every provider in a region. The result? Diluted negotiating power. If everyone is “preferred,” then no one truly is.

Today’s PPOs often feature broad networks that prioritize convenience, steering patients toward certain providers and facilities. For many, this works well: Show your insurance card, see your doctor, pay your copay.

But as health care costs continue to rise, PPO plans are becoming increasingly unsustainable for many businesses and American families. A recent Mercer survey found that over half of employers expect to shift more health care costs onto employees by 2026, citing the growing financial strain of medical expenses.

Additionally, PPO contracts often lack transparency, leaving employers uncertain about what they are actually paying for. Higher costs and convenience do not necessarily lead to a better experience. According to a KFF survey, nearly 6 in 10 insured adults have faced issues such as denied claims or provider network problems within the last year. Meanwhile, more than a third also reported confusion about which services were covered.

Considering the confusion and problems many face when it comes to their health plan, it’s understandable that 81% of Americans are dissatisfied with the cost of health care. But this is where employers can and should ask: Why should employees continue to pay more for an increasingly dissatisfactory healthcare experience?

Innovative solutions: reference-based pricing

One powerful and less prevalent solution to offer Americans a more affordable health care option is reference-based pricing (RBP). While only a minority of commercially insured Americans have access to an RBP powered health plan, it provides a more affordable solution. Instead of paying arbitrary charges negotiated between providers or health systems and health plans, RBP uses a transparent benchmark, often tied to Medicare rates, to determine a fair price for medical services. Compared to a traditional PPO plan, companies using RBP reduce total health care costs by around 20%. That’s not just theoretical savings – it translates into real dollars that can be reinvested into employees through lower premiums and reduced out-of-pocket costs.

While an RBP health plan may require members to take a few extra steps to receive the same high-quality care they would in a PPO plan, such as scheduling appointments in advance or submitting medical bills manually, it offers significant savings and helps American families reduce their health care costs by thousands of dollars each year.

And here’s what I believe matters most: giving people a choice. Some employees may still want the convenience that a PPO provides and are willing to pay more for it. Others want solid, affordable coverage and would like to select an RBP powered health plan.

One Dallas-based retailer gives employees a choice between two health plans: a PPO and an RBP powered option. Those who opt for the RBP plan save $6,000 annually in premiums and benefit from an out-of-pocket maximum that’s $6,000 lower than the PPO. For families managing chronic conditions or facing unexpected emergencies, that can translate to $12,000 in total annual savings on health care costs.

Affordable health care for all

The status quo in health care has left too many people feeling like they’re trapped in a system they can’t afford and can’t escape.

But it doesn’t have to be that way. Employers have more leverage than they realize to change the narrative, and innovative solutions like RBP prove that lower costs and high-quality care are not mutually exclusive.

In the same way that the automotive market gives consumers choices that address their needs and still fit their budget, we believe the health care market should, too. Americans should be empowered to choose the plan that best suits their health needs and their financial status.

Let’s start showing people not just the Mercedes in the showroom, but the F-150, too. Because at the end of the day, everyone deserves a health care journey that’s multi-purpose, dependable, and affordable – without sacrificing quality along the way. Let’s get on the road to a health care system that works for everyone.