Tiered Plans: Threat or Promise

Today’s Managing Health Care Costs Indicator is 1.5x

Monday’s Boston Globe had an article on page one (“top of the fold”) on tiered health plans.  The title was “Tiered health plans cutting costs, restricting options.”    The authors tried to be even-handed – but stories with narrative force are more compelling than some dry statistics.  It’s hard to come away from the article with a positive feeling about health plan network options that charge patients more for care at hospitals and providers with higher prices.

The focus of the article is Glenn McCarthy, 48, who was found to have prostate cancer.  Faced with a potential month-long wait to have surgery done at a community hospital ($150 cost share), he chose to have the surgery at an academic medical center ($1000 cost share).  His total out-of-pocket liability ended up not being a thousand dollars, but $4500 because he had a series of complications that led to additional cost sharing.   He and his wife are now struggling to pay this off, and their insurer has denied their appeals.

Enrollment in narrow network or tiered plans has increased sharply in the last few years.   The Massachusetts Group Insurance Commission, which purchases health insurance on behalf of state and governmental employees and retirees,  offered a three month employee “premium holiday” to encourage state workers to choose narrow network plans this year, and 10,000 made the move.

Employers have found that when overall cost of care has increased but they feel cannot afford to raise the employer contribution to this, they can

• Raise employee contributions
• Lower the benefit level (raising member cost sharing across the board)
• Raise cost sharing for providers who have very high prices. 

The last option is attractive because it could encourage some patients to move to more cost-effective providers, as well as encourage providers with high allowed prices to lower these prices. That’s happened in California when CalPERS, which covers state and other governmental employees and retirees started using ‘reference pricing’ for knee and hip replacements.  Some hospitals with allowable fees in excess of the reference price renegotiated their rates to avoid losing patients.

Tiered networks that are based on price alone could actually destroy value by directing patients to hospitals or providers of lower quality.  Most of the available tiered plans use some form of quality ranking to be sure that high quality providers are available within the lower cost tier.

Clearly, tiered networks have the attention of the more expensive providers:

“[Tiered Networks] present one of the greatest threats to access that there is in the Commonwealth right now,’’ said Dr. James Mandell, chief executive of Children’s Hospital Boston.

Many would say that the greatest threat to access is high cost – not health plans that offer lower premiums and a choice of paying higher cost share to get care at Children’s, which is very expensive compared to comparable hospitals.  How expensive?  The Attorney General reported that risk adjusted total medical expense at Children’s was among the three highest in Massachusetts for all three major health plans – over 1.5x the least expensive provider in BCBSMA and Tufts, and over 1.9x in Harvard Pilgrim. 

As I’ve noted before, increase in unit cost is a major problem in Massachusetts, and is the major factor making health care in the US more expensive than in other developed countries.

Clearly,  with huge disparities in cost and without clear correlations with quality, efforts will continue in Massachusetts to rein in higher allowed prices.   Tiered networks are a market lever to try to reduce the price at the highest cost facility. 

There are alternatives.  Former Massachusetts governor Mike Dukakis spoke earlier this week at Harvard School of Public Health and said

If we paid a little attention, it might be a good idea, to the experience of other countries around the world who are doing this and who, for some reason, seem to be able to provide rather good health care to their people at half the cost we do -- whatever the siltstone, whether it’s Australian medicare or a multi-payer system in Germany or an essentially privatized system in Switzerland -- every one of them regulates cost, without exception…Now don’t get me wrong. Nobody loves having to regulate. We had something called the rate-setting commission when I was governor... We treated hospitals as public utilities. They couldn’t raise their rates a nickel unless they went to the rate-setting commission. We certainly didn’t have these huge disparities between what Partners gets and what the BI gets. Wouldn’t allow it. So, we’ve got to get on with the business of regulating costs. 

I’m guessing that we’re likely to continue preferring market approaches to price disparities, so tiered networks will continue to expand.   Efforts to reintroduce price regulation continue to heat up as well.