The Impact of a Tiered Network Design

By May 12, 2017Commentary

Employment-based health insurance still covers most Americans.  Health plans are under substantial pressure from employers to figure out how to reduce spending.  There are basically two ways to do this; reduce utilization or reduce unit costs.  One approach to reducing unit costs is to pay providers less.  Enough information is now available to identify lower-cost providers who also render equivalent quality care as higher priced ones.  The real gold mine is a low-cost provider who manages patients efficiently, using little or no inappropriate care while scoring well on quality metrics.   Now plans have begun creating tiered networks with lower copays for use of these lower-cost, more efficient providers.  A study published in Health Affairs evaluates the effectiveness of this design.   (HA Article)  These designs are distinct from narrow networks, which typically exclude some providers completely from the network, usually for cost reasons.

The study used data from BCBS of Massachusetts from 2008-12.  The insurer offered a network with three tiers, and copays varied by tiers.  Most of the plans covered most services, but 25% of members were in one that only tiered hospital admissions.  Some plans also tiered the applicable deductible, if any.  There was matched control group of members not in a tiered plan.  The primary outcome was total medical spending per enrollee per quarter, with sub-analyses for certain services.  By the end of the study period, about 30% of all enrollees were in a tiered network plan  These members tended to be slightly older and to have slightly higher health risk.  Spending for tiered-network enrollees grew slightly slower in the pre-study period than did that for non-tiered plan members.  Medical spending on the tiered-plan enrollees was about $43 lower per quarter, or around 5%, a significant savings.  The savings were roughly similar across inpatient and outpatient care and imaging.  These savings could lower both premiums and cost-sharing amounts.  A 5% reduction in trend is a very good result among the plethora of spending control techniques.  Hopefully legislators and regulators stay out of the way or even encourage these plans, but you never know with lobbying.

Author Kevin Roche

The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry through Roche Consulting, LLC. Mr. Roche is available to assist health care companies through consulting arrangements and may be reached at khroche@healthy-skeptic.com.

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