Tiered Network Health Insurance Plans

Insurers have introduced tiered networks as a cost-saving measure

Health Insurance Form
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Most of us are used to the idea that private health insurance plans have provider networks. Insurance carriers negotiate contracts with specific doctors and hospitals to create a provider network, and policy-holders generally must receive care from in-network providers (public plans like Medicaid and Medicare also have participating providers; most providers participate with Medicare, and although not as many accept Medicaid, the majority of doctors do take Medicaid).

PPOs generally allow patients to see providers outside the network, but the out-of-pocket maximum can be higher than the limits set for in-network care. PPOs typically double the out-of-pocket maximum for care received outside the network, although it's also becoming more common for PPOs to have unlimited out-of-pocket maximums for out-of-network care (ie, if you go outside the network, there may be no cap on how much you have to pay for your portion of the costs).

HMOs and EPOs generally require patients to use in-network providers and don't cover out-of-network care at all, unless it's an emergency. 

Tiered Networks

Tiered networks garnered national attention in the fall of 2015 when Horizon Blue Cross Blue Shield rolled out tiered network Omnia plans in New Jersey. In Illinois, Land of Lincoln Health (an ACA-created CO-OP) also uses tiered networks, and they're available in the individual and group markets in many other areas.

Essentially, tiered networks allow health insurance carriers to keep their overall network relatively large, while effectively limiting most members to a much smaller network - but the choice is up to the member. 

With a tiered network, members pay lower out-of-pocket costs when they see a provider in the top network tier. They're free to see providers in the lower network tier, but they'll pay more in out-of-pocket costs if they do.

The ACA's limits on out-of-pocket costs still apply if the patient chooses to see a provider who is in the network but not in the top tier. As long as the provider is in the plan's network, the patient's costs for essential health benefits during the year won't exceed the limit set by the ACA (for 2016, that $6,850 for a single individual, and $13,700 for a family; for 2017, it increased to $7,150 for a single person and $14,300 for a family).

And the plan can impose the same out-of-pocket maximum for services obtained from the network's top tier of providers (here's an example from Horizon Blue Cross Blue Shield in New Jersey - regardless of whether patients use tier one or tier two providers, the annual out-of-pocket maximum is still the same).

But patients who choose a top-tier providers will pay less in out-of-pocket costs each time care is received (for example, a $15 copay to see a doctor instead of $30, or a copay to see a doctor instead of having to pay the deductible and coinsurance, or no deductible instead of a $2,500 deductible). For patients who don't end up meeting the plan's out-of-pocket maximum during the year, there's a significant incentive to use doctors and hospitals in the top tier of the network.

Tiered Networks Are Not New

Tiered networks are not new - they predate the ACA and have long been one of the strategies health plans use to combat rising costs. Horizon BCBS's Omnia plan in New Jersey is about 15% less expensive than comparable Horizon plans in 2015 that didn't utilize a tiered network. Not surprisingly, the lower premiums on tiered network plans are attractive to consumers and employers.

Determining Tiers

Health insurers can use a variety of metrics to determine which doctors and hospitals end up in which tier. Generally, quality and cost efficiency ratings are used, although top-tier providers also agree to accept lower reimbursement rates from the health insurer, in trade for the fact that they will almost certainly receive higher patient volume as a top tier provider. 

But there can be controversy when it's unclear what metrics carriers use to determine which doctors and hospitals will end up in the coveted top tier. In New Jersey, lawmakers have gotten involved, and several pieces of legislation have been introduced to address tiered networks and transparency in terms of how providers are assigned to a tier. Half of the state's hospitals ended up in tier two (ie, the non-preferred tier) under Horizon BCBS's Omnia network design, and they're understandably unhappy about it.

Lawmakers and consumer advocates are also concerned that hospitals in non-preferred tiers could end up suffering financial losses as a result of reduced patient volume (since patients will choose tier one hospitals in order to take advantage of the lower out-of-pocket costs), and that could, in turn, hurt consumers who live near those tier 2 hospitals - particularly when the hospitals in question are "safety net" hospitals that typically see a significant volume of low-income and uninsured patients.

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