Say the limit is $30,000. The plan offers you a choice of hospitals within its provider network. If you pick one that charges $40,000, you would owe $10,000 to the hospital plus your regular cost-sharing for the $30,000 that your plan covers.
The extra $10,000 is treated like an out-of-network expense, and it doesn't count toward your plan's annual limit on out-of-pocket costs.
That's crucial because under the health care law, most plans have to pick up the entire cost of care after a patient hits the annual out-of-pocket limit, currently $6,350 for single coverage and $12,700 for a family plan. Before the May 2 administration ruling, it was unclear whether reference pricing violated this key financial protection for consumers.
Some experts are concerned.
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"The problem ... from the patient's perspective is that at the end of the day, that is who gets left holding the bag," said Karen Pollitz of the nonpartisan Kaiser Family Foundation.
Previously a top consumer protection regulator in the Obama administration, Pollitz said the administration ruling amounts to a substantial change for consumers.
It's not on the radar yet for most people, but the new approach is gaining ground. The Mercer benefits consulting firm said 12 percent of the largest employers were using reference pricing last year, nearly double the 7 percent in 2012.
It's been pioneered in California by CalPERS, a giant agency that manages health and retirement benefits for public employees.