Consumer Cost Sharing in Employer-Provided Health Insurance

When two benefits consulting firms in the US merged in 2015, they faced a decision about how to advise their clients on health-benefit design. Two years before the merger, each firm had taken a different path. One began recommending healthcare plans with a high deductible--that is, the amount an employee was responsible for paying out of pocket before the insurance company's liability took effect. The other began recommending plans that used a reference-based pricing system, which established a going rate--or "reference price"--for certain services. Employees were free to choose their preferred provider of healthcare services, but they were responsible for paying out of pocket any costs above the reference price. The newly merged company has hired you to analyze the success of each strategy at reducing clients' healthcare costs, so that it can offer the best advice to its clients going forward.