Cost Containment Strategy #3: Tiered and High Value Network Design
Year after year, our clients ask us to help them evaluate opportunities to contain benefits costs while maintaining valued coverage and continuity for employees. In this blog series, we’ll explore several of these benefits cost-containment strategies that are currently available in the Middle Tennessee marketplace.
Network Design as a Cost Containment Strategy
Up to 85 percent of health plan costs can be attributed to the cost of paying medical and pharmacy claims. Employers are limited to influencing plan costs with benefit plan design, contribution strategy, and provider access. Some of the Affordable Care Act’s consumer protections—increased standardization of benefits, a maximum limit on out-of-pocket spending, and the elimination of annual and lifetime limits on benefits, for example—have foreclosed many plan design options. Wellness and consumer education approaches have become widespread, but competitive benefits and reasonable payroll deductions are necessary to attract and retain the best employees. Looking anew at provider access via network approaches makes sense.
High and rising premiums, along with evidence of wide variations in prices among providers from several markets, may be contributing to renewed interest in tiered networks. Tiered networks typically classify hospitals and/or physicians into two or three tiers using cost metrics or some combination of cost and quality metrics. Plans using tiered networks don’t require use of lower cost, but the plan design provides a financial incentive for consumers to incorporate cost differences into their provider choices. The successful use of tiered networks relies, in large part, on accurate provider information and on employees’ understanding of the way their choices affect their cost.
High-value networks also rely on metrics to deliver lower-cost care with acceptable quality. High-value networks can be paired as an option with broader networks, or can stand alone. Milliman estimates that high-value networks deliver 5–20% cost savings versus broader networks.
A local example of a high-value network is BlueCross BlueShield of Tennessee’s Network S, which is narrower than Network P and excludes major hospitals while providing adequate facility access. Network S typically costs 10–12% less than Network P. Employees may be attracted to high-value networks because of the lower cost, and must be thoroughly educated about limitations they may encounter when they seek care.
Surveys have shown that consumers are willing to trade access for lower premiums. Limited or “skinny” network plans can offer value to consumers, with value being in the eye of the beholder. Coverage that pairs a low premium with a network that provides meaningful provider access might meet the needs of many members regardless of the network’s overall size.
The value proposition of networks—particularly narrow ones—is in large part dependent on consumers’ understanding how they work. Network designs must be transparent and well-communicated, with accurate and up-to-date provider data.
If you’d like to understand the impact of approaching networks as a cost-containment strategy, it is best to work with a consultant who will run a financial impact analysis as well as help you communicate the benefits to your employees.
The provider access approach is one of many cost-containment strategies you may want to consider. Interested in learning more? Contact Paradigm Group to discuss networks and other cost-containment tactics to control your health care spend.