How to use tiered and narrow networks to control health care costs

If you’re an employer, chances are you’re looking for ways to control health care costs, yet still provide high-quality coverage to your employees.

Health insurance plans with restricted networks are becoming an increasingly popular option for businesses looking to curb rising employee premium costs. When done right, they can save money without sacrificing quality. However, limited networks can confuse even the most astute employer — not to mention employees.

Smart Business spoke with Kimberly Cepullio, VP Sales, Account Management and Product Development, UPMC Health Plan, about restricted networks, including some questions to ask as you weigh the choices for your health plan.

What’s the difference between narrow networks and tiered networks?

In a narrow network a health insurance carrier contracts with select doctors and hospitals that charge lower prices, or have a track record of quality. By steering a greater volume of business to these providers, insurers can negotiate lower prices. The savings are passed on to employers and their employees in the form of lower premiums. The tradeoff for lower premiums is less choice for members.

A variation of the narrow network is a tiered network, which offers a potential compromise. In this plan design members have access to a broad network of providers. Within this broad network, health care providers are ranked based on cost — and quality. Differing cost-sharing arrangements drive members toward certain providers.

Members have the lowest cost share when they receive care from level one providers. Their out-of-pocket costs are higher when they see providers in other levels. This type of plan lets your employees decide whether to incur higher costs to see their preferred provider, or have a lower cost share and see the network’s preferred providers.

What kinds of questions should employers be asking when considering tiered or narrow networks?

  • Does the network encourage improved patient outcomes? The main objective of tiered or narrow networks is to lower costs for employers and members. Some plans also seek to improve patient outcomes by incentivizing its preferred providers to provide coordinated care and achieve certain quality metrics. For example, a shared saving arrangement ties provider payment amounts to the ability to stay within budget while meeting quality standards.
  • Is there an adequate pool of providers for the patient population? Normally this isn’t a problem but employers need to be careful here. For example, some narrow networks offered by some insurers may not include providers who offer highly specialized care. For some patients, especially those with complex health conditions, such restrictions can be problematic.
  • How well do your employees understand their options? Many members choose a plan with a narrow network because of the lower premiums. People may not understand the tradeoff between choice and price. Make sure your insurer has a communication plan to explain what it means to choose a narrow network. Before committing to a plan, employees should be able to search for doctors in the network they’re considering to see if their doctor accepts that plan.

In general, including a tiered network plan among your insurance offerings to your employees is a smart move. It incentivizes employees to seek medical care at preferred or low-cost tiers. That’s a good thing for them and for you.

The key is to not limit the employee’s ability to get the care he or she needs from the provider that is in the best position to provide that care. Therefore, it is especially important that employees with unusual or complex medical conditions take extra care when it’s time to select a tiered plan. Once they choose their plan, their complex condition may force them to pay a higher cost to have that condition treated at a non-preferred provider. Again, this is why communication is key to making wise choices.

Insights Health Care is brought to you by UPMC Health Plan