Hospital-Tier Insurance Plans May Save Employees Money,
But May Burden Health Care System With Complexity

Health Affairs Web Forum Explores Experiments In Tiered Networks;
Quality, Cost Information Said To Be Lacking

BETHESDA, MD—Enrollees may save money if they choose lower-cost hospitals under insurance plans that offer "tiers" of provider networks with different cost sharing requirements. Experts identify these new products as consumer-friendly experiments because patients can avoid rising costs, but warn that not enough quality information is available for the 6.8 million Americans enrolled in such tiered network health insurance products.

Employers and insurers are increasingly moving to such plans in response to growing hospital costs and employees' resistance to closed-network health plans. In a tiered network plan, employees are given an option of using a "core" network of hospitals or a "premium" network, based on their costs, quality or structural characteristics, such as whether they are an academic medical center. Enrollees can choose to pay lower coinsurance rates or co-payments for choosing low-cost hospitals and higher coinsurance or co-payments for choosing higher-cost hospitals.

The Web forum at www.healthaffairs.org grew out of a roundtable on the hospital tiering trend sponsored by Health Affairs and CHCF. Three of the four articles were adapted from presentations made at the roundtable, while the fourth sums up lessons from the roundtable.

In the forum's lead article, titled "Hospital Tiers in Health Insurance: Balancing Consumer Choice With Financial Incentives," James C. Robinson, a professor of health economics at the University of California, Berkeley, says "Employers and insurers want to increase enrollees' sensitivity to price variations between hospitals, something from which enrollees have been insulated in the past because the benefits were the same no matter which facilities they choose."

"Today, similar to prescription drugs, employers are asking insurers to design coverage products that give incentives to cost-conscious consumers to choose lower-cost facilities," Robinson says. "This will put indirect pressure on hospitals to moderate their prices."

According to Jill M. Yegian, senior program officer with CHCF, "Tiering and other changes in product design raise complex questions concerning these product features' potential to reduce system costs, consumers' ability to understand the cost and quality implications of their decisions, and financial barriers to care for the chronically ill."

Other findings of the forum:

* In an overview article titled " Tiered Hospital Networks: Reflections from the California HealthCare Foundation/Health Affairs Roundtable," Yegian writes that roundtable participants believed hospital tiering is one product of a health care market that's trying to respond to higher cost and a soft economy. While tiered-network products may seek to reduce overall health-care system costs, Yegian writes, the roundtable participants warn that it may only result in shifting more costs to consumers or among payers. She adds that consumers may not be provided adequate information about costs before they're treated, further complicating decisions for consumers.

* Marjorie Ginsburg, executive director of Sacramento Healthcare Decisions, writes in "Hospital Tiering: How Will it Play in Peoria?" that for tiered-network products to contribute meaningfully to consumer cost-consciousness, other providers (such as physicians, hospital patient-education departments, and third parties such as employers) need to include price and quality information in patient care services and education.

* In "The Erosion of Health Insurance: The Unintended Consequences of Tiered Products by Health Plans," Thomas Priselac, president and chief executive officer of Cedars-Sinai Medical Center, argues that hospital tiering that uses cost alone as a basis doesn't account for differences in hospitals' missions, services, populations and other factors.

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research.

The California HealthCare Foundation based in Oakland, is an independent philanthropy committed to improving California's health care delivery and financing systems. For more information, visit www.chcf.org.
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©2003 Project HOPE–The People-to-People Health Foundation, Inc.