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Tiered Health Plans:

Frequently Asked Questions

Tiered health plans are one of several relatively new types of health insurance products that are designed to engage consumers in the financial implications of their health care decisions.   

In tiered health plans, insurers rank hospitals and providers according to the cost of the care they provide. (Performance on quality measures may or may not be considered as part of the tiering.) Consumers are incented via lower cost-sharing to obtain their health care from providers in the lower-cost tier.   

Ultimately, the goal is to help contain the rising cost of health care.     

What is a tiered health insurance plan?

A tiered health insurance plan provides benefits and services for beneficiaries based on a ranking system that groups hospitals and providers primarily according to what the insurance company pays for care delivered by them. The tiered product could be a Health Maintenance Organization (HMO) product, a Preferred Provider Organization (PPO) product, or a Point of Service (POS) product.   

Consumers may choose to get their care from providers in any of the tiers. But consumers would typically pay more or less for services based on how the hospital or physician is ranked or tiered.     

Why are insurance companies offering tiered plans?

Tiered plans have been developed to involve consumers in considering the cost of their care when making health care decisions. With tiered products, consumers have a financial incentive to seek health care services from a preferred (i.e., lower cost) tier hospital or physician. If tiering is successful, the overall cost of care for individuals could decrease.   

Insurance companies may use tiering as a way to manage what they have to pay for health care services. They may seek to hold down hospital prices by negotiating discounted pricing from hospitals in exchange for being placed in a preferred tier.

Do the tiered plans provide services in a less expensive fashion?

The fact that an insurance company was successful in negotiating a lower rate in exchange for ranking a provider in a preferred tier does not necessarily mean that it costs less to provide the service.   

Many factors contribute to the cost of health care services. These factors may or may not be included in the price that an insurer pays for the services or the amount that consumers have to pay in co-payments or deductibles.   

For example teaching hospitals have to cover the costs of providing medical education. Hospitals have costs associated with being prepared to respond in the event of a disaster. Some hospitals provide specialty services like care for trauma and burn victims that have to be absorbed by the facility.     

Why should a consumer consider selecting a tiered plan?

A tiered plan may offer consumers savings on the cost of their health insurance and health care.

A tiered health plan may have a lower premium. As a result, the monthly out-of-pocket expense could be less than for other insurance products. In tiered plans, consumer co-pays and other cost-sharing obligations would typically be lower for preferred, lower-cost tier hospitals and providers.

Do tiered insurance plans limit consumers’ ability to go to any hospital or physician?

In general, consumers would be able to go to any hospital or physician for services. But consumers would typically pay more if they chose to get their care at a hospital or provider NOT in the preferred, lower-cost tier. It is cheaper for consumers to receive care at a hospital that is ranked in a more preferred tier because they would have lower co-payments and/or deductibles.

Routine and primary care services should be available at preferred tiered hospitals. However tertiary services are only available at select hospitals. These select hospitals may or may not be in a preferred, lower-cost tier. (Tertiary care services are special consultative services that would require complex medical or surgical interventions that could include cancer treatment, cardiac surgery, neurosurgery, plastic surgery, treatment for burns or palliative care.)

As a result, depending on the complexity of the consumer’s health condition, he or she may need to get care from a hospital that is not in the preferred tier. In this situation, the consumer would be responsible for the higher cost-sharing associated with going to a hospital ranked in a higher-cost tier.

If the tiered product had a narrow network aspect, then consumers would be limited to receiving services from hospitals and physicians participating in the narrow network. This exception would only apply if the tiered insurance plan was a narrow network product, which would mean that there would only be select hospitals and physicians that participated in the network.

Are there any risks with having a tiered insurance plan?

The main risk would be if a consumer decided that, because of the nature of a medical condition, he or she wanted to go to a hospital or provider in a higher-cost tier. The consumer would have to be able to afford the higher-than-expected cost-sharing associated with that higher-cost tier.   

Consumers should assess the tiering system so that they know what hospitals, primary care physicians, and specialists are in the different tiers. Consumers should be aware of the out-of-pocket costs for the different tiers.   

In addition, a physician practice could be placed in a different tier from the hospital with which the practice is affiliated. For example, a physician practice might be in a preferred, lower-cost tier even though the practice is associated with a hospital or health system that is in a higher-cost tier. If a consumer chose a tiered insurance plan based on his or her physician, that consumer would be faced with higher-than-expected co-pays if admitted to the physician’s associated hospital.   

Another risk is the chance that the consumer or family member might develop a catastrophic illness or condition requiring treatment at a tertiary or quaternary care hospital that is not in a preferred, lower-cost tier. In this situation, the consumer could face higher-than-expected out-of-pocket costs.     

What about emergency care and tiered insurance plans?

Consumers can’t always choose where to get their emergency care. A medical crisis may force them to go to the nearest hospital, even if that hospital is in a higher-cost tier. If they are admitted to that hospital, it will cost them more than they may have expected.     

What should I consider in making a decision about a tiered product?

The following are suggestions for what consumers should consider about tiered insurance plans:

  • Ask for cost and quality information about the various tiers, so that you know what the insurance company used as a basis for the ranking system. Consider what quality measures may have been used to determine the appropriate tier for a hospital or physician. Depending on how insurers determined the ranking of hospitals and providers, a hospital or provider’s tier may or may not be reflective of the quality of services provided. 
  • Check to see which tiers hospitals, primary care physicians, and specialists are in. Some physicians may be placed in a tier that is different from the hospital or health system with which they are associated. Evaluate the benefits to see if some benefits are covered at the same cost-sharing level regardless of the tier. For example, the co-pays for preventive and emergency services may be the same for all the tiers. Compare the premium cost for the tiered health plan to the premium cost for a comparable non-tiered plan. 
  • Evaluate the potential difference in co-payments and deductibles for services you may receive from a hospital/physician in a tiered plan as compared to the cost to receive services from the same hospital/physician under a non-tiered plan.           

What about the Independence Blue Cross (IBC) tiered plans being offered on the Pennsylvania Health Insurance Marketplace?

Independence Blue Cross has offered Keystone HMO Gold Proactive Plan and Keystone HMO Silver Proactive Plan as their tiered network products. The premiums for these products are lower than the standard HMO silver and gold products offered on the marketplace.   

Based on cost and some quality considerations, IBC’s network hospitals and physicians are placed into one of three tiers:

  • Lowest-cost tier 1, with lowest plan member cost-sharing, is the Preferred Tier 
  • Middle-cost tier 2, is the Enhanced Tier 
  • Highest-cost tier 3, with highest plan member cost-sharing, is the Standard Tier   

Some health systems in southeastern Pennsylvania have hospitals and physician groups placed in different tiers.   

Both pediatric hospitals are in the middle tier. As a result, pediatric hospitals and affiliated physician services are not available in the lowest cost, Preferred Tier.   

Eighty of the region’s 88 adult surgical centers were placed in the Preferred Tier.   

Some services are covered at the same out-of-pocket costs across all three tiers. These services include: emergency room visits; ambulance transportation; outpatient laboratory services and prescription drugs.     

What about the Horizon tiered product being offered on the New Jersey Health Insurance Marketplace?

Horizon has offered two tiered products on the marketplace: Horizon Advance EPO Silver and Horizon Advance EPO Gold. These are HMO products, so members must select a primary care physician to coordinate care and make referrals to participating specialists.   

Based on cost and some quality considerations, Horizon’s hospitals and physicians are placed into one of two tiers:     

  • Lowest-cost tier 1, with lowest plan member cost-sharing, is the Preferred Tier 1 (PT 1)  
  • Higher-cost tier 2, with highest plan member cost-sharing, includes all other in-network hospitals and physicians without PT 1 designation. Emergency services are covered at the same out-of-pocket costs across the two tiers   

Some health systems in southeastern Pennsylvania have hospitals and physician groups placed in different tiers.   

All of the Pennsylvania hospitals are in the high-cost tier.

Download a copy of the Tiered Health Plans: Frequently Asked Questions.

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