Tiering and Steering

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.

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17 replies
  1. 1
    aimai says:

    Thank you so much for this, Richard. Thanks to all your posts I have been able to answer other people’s questions/complaints about narrow vs. wide networks. Your column is just so clear! I wish you could have a national op ed at the Times every week. You deserve it.

  2. 2
    low-tech cyclist says:

    Nitpick: it’s a dessert topping and a floor wax.

    And thanks, as always, for giving us a better understanding of how these things work. You’ve become a real must-read.

  3. 3
    low-tech cyclist says:

    @aimai: If the NYT and the WaPo got rid of their entire stable of op-ed columnists tomorrow, and replaced them with the best that the blogosphere has to offer, we’d all be better off for it.

  4. 4
    Richard Mayhew says:

    @low-tech cyclist: updated :)

  5. 5
    rikyrah says:

    thank you for your continued education of us about Obamacare.

  6. 6
    negative 1 says:

    I was under the impression that these were not an ACA invention — I’m responsible for buying healthcare for the company I work for and they’ve been trying to push these for a few years at least. When I first heard about them I sort of thought they would be the wave of the future, or at least our plan would get more expensive as the idea of choice in doctors and hospitals would be considered a luxury you’d have to pony up for. Does anyone else think this was going to happen regardless of whether or not the exchanges were set up?

  7. 7
    Richard Mayhew says:

    @negative 1: Definately not a PPACA invention — tiered networks have been around for at least my entire professional life — but like narrow networks, PPACA will make them more common.

  8. 8
    Eric S. says:

    So does this mean you have 2 running deductibles? If you spend $500 at the first tier towards the $1500 deductible does that mean you still haven’t fulfilled any of the $3000 deductible at the second tier?

    I guess this is the same as a single tier with in network and out of network but I don’t know that answer to that question either.

    And to reiterate what others continue to say, thank you very much for all the posts on the Insurance industry. I’ve learned a lot.

  9. 9
    Richard Mayhew says:

    @Eric S.: Eric — that really depends on the super-fine print of your policy. Some policy designs will have 2 entirely seperate deductibles, others will have the $500 of primary preferred tier deductible count to the seperate 2nd tier deductible. Others will flip-flop every week as the insurance company fools around with its claim system. It really depends.

  10. 10
    Aardvark Cheeselog says:

    @Richard Mayhew:

    PPACA will make them more common

    Sounds like a bug, not a feature.

  11. 11
    flukebucket says:

    People in my Georgia hometown are just raising hell about the fact that due to Obamacare the rural hospitals are closing. How about some pithy factual information that I can put in to a letter to the god damn editor of the local paper?

    I know it will get a cross burned in my yard but I don’t give a damn!

  12. 12
    kc says:

    . 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

    Or within 80 miles, in my case.

  13. 13
    Stan of the Sawgrass says:

    @flukebucket: I’m curious about this too. I live in the South Fla. megoogleopolis, but my sister lives in our ancestral hamlet in Alabama. The county hospital is in town, but if you want a specialist, or if you don’t like either of the two doctors in town (and one is pretty bad), you have to drive 30 to 60 miles. Small hospitals were closing before O-care, and convincing doctors to open rural practices has been an ongoing problem for years and years. I’m also wondering what effect, if any, the PPACA might have on this.

    (BTW: the 7-11 in my sister’s town now carries “match-lite” crosses, which has resulted in fewer gasoline burns and scorched sheets.)

  14. 14
    kc says:

    Seriously: I couldn’t find any info in this post that is remotely useful or comprehensible to me as a consumer.

    Maybe someone could dumb it down for me.

  15. 15
    Richard Mayhew says:

    @kc: Ok, a tier and steer network has member responsibility levels with the intent of driving people to choose a particular group of providers. Let’s take for illustration purposes only a PPO plan with 100 hospitals in it and only look at deductibles to make things simple.

    A A broad network has 100 hospitals and a single split deductible. Let’s say $500 if the member goes to an in-network hospital and $5000 for out of network.

    B A narrow network will have 47 hospitals in it and a single split deductible. Again $500 for the in-network and $5,000 for out of network. This time, the out of network set of hospitals includes 53 hospitals that are in-network for the broad network product in A.

    C A tiered network will have 47 hospitals in the top tier. Deductible is $500. 53 hospitals that are in A but not B are in the second tier. The deductible to use those hosptials might be $2,500. And then everything else is out of network at a deductible of $5,000.

    The goal of network design C is to drive people to use the 47 hospitals in the top tier while minimizing complaints/bad news articles for the people who want/need to use the hospitals in the second tier.

  16. 16
    Richard Mayhew says:

    @Aardvark Cheeselog: Depends — are the tiers based on quality/effectiveness… if so, then that is a feature as it is driving people to higher quality care at the same or lower net pricing. If it is based on MBAs masteurbating, then it is a bug.

  17. 17
    Fred Fnord says:

    One can’t help wishing that there were some way to figure out what insurance which doctor takes before signing up for it. Friend just signed up for a plan which had his physician logged as a participating provider, and even called his physician’s office who said that yes, they were a participating provider in all Blue Shield plans, including the ones on the exchange. First time he tried to use it there, they bobbled it for a month and then charged him out-of-network, even though the physician is still on the list of in-network for that plan.

    I understand that it’s really hard to keep these lists up to date, but at some point if it’s not up to date it should be the insurance company paying the price. He’s lodged a complaint, so we’ll see where that goes. But of course if it goes nowhere there is no appeal, since there is an arbitration agreement and the arbitrator may as well be a wholly-owned subsidiary of the insurance company. (I read an article claiming that in some states, for some companies, the arbitrators rule for the corporation and against the individual over 90% of the time, and the average arbitrator handles more than three jobs a day, from start to finish. Clearly they don’t need to spend much time looking at the evidence. Sweet job if you can get it.)

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