One of the major legitimate complaints about Obamacare Exchange policies has been the prevelance of narrow networks. Narrow networks exclude hospitals and providers so that a policy holder may not be able to go to the physician or hospital that is down the block from their house. Insurers like narrow networks because it gives them a bit more cost control and negoatiating leverage with common service providers. Narrow networks allow insurers to say no to providers.
Insurers that want to avoid public backlash for having networks that are too narrow may embrace the tiering model of network and benefit design. This is an alternative that allows an insurance company to say it is offering its full network to potential members while still giving the insurance company significant cost control. So how does this dessert topping and floor wax work?
A traditional single tier PPO network will have an in-network benefit design and an out of network benefit design. If a member sees an in-network provider, they’ll have a single deductible, co-pay and co-insurance. Their “slash line” might be $1,500, $20/50, 20%,$4,000 which means they have a $1,500 deductible, a $20 PCP co-pay, and a $50 specialist co-pay and 20% co-insurance and a $4,000 out of pocket maximum. Their out of network benefits may be $3,000, $100, $50, $8,000. From a member point of view, it is simple — see an in-network provider and get a much better deal. The providers who contract for the in-network rate know that they are going to see a lot of patients and get paid quickly.
A tier and steer benefit design makes this more complicated. The in-network provider network is split into two or more groups or tiers. The preferred group of providers are the “narrow” part of the tier and steer. These are the providers the insurance company wants its policy holders to go see. The way that members are sent to the preferred providers is by changing the slash line. The preferred tier slash line might be $500, $10/25, 15%, $2,000. That looks like a good deal as the deductible is low, and total potential exposure is low. This is bought at the cost of a limited network of providers.
The second but still in-network group of providers will trigger different slash line. The slash line for these providers may be $2,000, $20/$50, 20% $4,000. These providers are in-network but they are expensive to see. This is a patina of plausibility that the product is a broad network product. The much higher slash line means these providers won’t see many patients, and they will either get out of network in the near future, or drop their rates to get into the preferred tier. However, if a member wants to see the doctor who fixed Aunt Maria’s hip really well last year, they can without being denied or ran around.
The final tier is still the traditional out of network tier.
Tiering and steering is an effective cost control system. My personal insurance is a tiered product. I get the good rate at every provider group except those that belong to Big City Academic Medical Group. BCAMG has a brand of having BCAMG in everything, so the information and search cost of figuring out who I should see and who I should not is fairly low. I save 15% or so compared to the broad, single tier product, although the truly narrow network is slightly cheaper than the tiered network.
However not all tier and steer networks are designed to solely get low cost, high quality providers on the priority usage list. Some tiered networks are designed by integrated payer-providers to keep almost all activity in the network. Other times, the tiered networks are part of a core business strategy designed to leverage synergistic opportunities while fucking over competitors and consumers. Other times, a tiered network is a one-off exception for a large group that wants to be a special snowflake.
I think tiered networks will be more common on the Exchanges this fall as well as more common for employee sponsored plans as they produce cost savings while at least maintaining the illusion of unlimited choice.