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With the continued upward pressure on cost and pricing constraints imposed by Health Care Reform, insurers and health plans are exploring new ways to drive consumer and provider behavior. Historically, the answer has been cost-shifting through the use of high deductible plans that are designed to engage employees by creating financial incentives to become better health care consumers and make healthier lifestyle decisions. The research shows that these plans can be effective in driving plan level costs down but it is unclear if they actually change spending behavior of members and/or increase competition among providers enough to impact the overall cost of care or if they simply shift costs to other parts of the health care system. Opponents argue that patients who consume more care migrate out of these plans in favor of more comprehensive coverage. Furthermore, research cannot account for the tax incentives (essentially government subsidies) associated with savings accounts that are used to pay for the higher out of pocket expenses associated with these plans.
An alternative to these high deductible plans that have more explicit and transparent consumer driven incentives is a tiered network plan. These networks rank health care providers based on cost and quality and apply different cost sharing arrangements to drive employees toward more efficient providers. Provider decisions can be made at point of service so an employee could choose to pay more for more specialized care in the event of a serious illness but could choose to receive routine care at a lower cost facility. In addition to the consumer directed benefits, these plans increase provider competition as they promise to drive usage to providers who are willing to offer services at discounted rates.
A more restrictive option built on the premise that consumers will not change behavior based on cost at point of service is a limited network. While there may be a choice (and often significant premium savings) to participate in the event dual option offering, once an employee chooses to participate he/she is restricted to a small network of low cost providers. These networks are not for every employer or employee. They can be quite restrictive in size and the less expensive networks tend to be smaller. There continues to be a bias that more expensive care is better especially on bigger ticket items and many employees insist on maintaining some level of choice regarding where care can be received.
Tiered and limited networks are an extension of consumer driven health plan theory in that they are designed to engage employees and employers by creating financial incentives to become better health care consumers. And, because approximately 80% of healthcare costs are incurred by 20% of the population, the bigger issue with healthcare inflation is the inability to control the higher cost expenses rather than the small amounts before the deductible. While High Deductible Health Plans may lead to smarter employee decisions they do little to change behavior on big ticket items and therefore do not materially increase transparency or competition on provider side.
With tiered and limited network plans, traditionally patient focused consumer driven theory has extended to influence behavior on the provider side due to the increased price elasticity of demand. As patient out of pocket costs are more in line with overall costs demand will become more sensitive to price and providers will be forced keep their costs competitive in the market.
Summarized below are some key features of limited and tiered networks:
If you have any questions regarding this material, please contact your Summit Benefit Solutions account representative.