Will tiered health plans lower costs?

By Richard Asinof
Contributing Writer
In Massachusetts, health insurers have begun to create a system of tiered insurance plans as a way to deal with hospitals charging widely varying rates for the same procedure. More

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INSURANCE

Will tiered health plans lower costs?

By Richard Asinof
Contributing Writer
Posted 12/26/11

In Massachusetts, health insurers have begun to create a system of tiered insurance plans as a way to deal with hospitals charging widely varying rates for the same procedure.

The idea is to make the actual costs of medical services more transparent, so employers – and their employees – can opt for the same services at a lower cost.

As the pieces of the new health care landscape in Rhode Island are being put together, some observers of the health care industry have wondered whether similarly tiered plans to those in Massachusetts – created either by insurers or by preferred, integrated networks of providers – could create market pressure for hospitals to reduce their prices.

The health insurers in Massachusetts have structured these plans so that members pay higher copayments at hospitals designated as high-cost hospitals, to create incentives for members to seek out hospitals that pay a less expensive reimbursement rate to the health insurer. As a further incentive to employers, health insurers offer companies a smaller annual increase in premiums that sign up.

Since it began offering its two-tiered plan in January, Blue Cross Blue Shield of Massachusetts has said that about one-third of its small-business customers have switched to the tiered plan as contracts came up for renewal.

“It’s one of the fastest-growing products in the history of our company, which I think is a measure of how urgently our customers are experiencing the affordability crisis,” Andrew Dreyfus, CEO of Boston-based Blue Cross Blue Shield, told The Patriot Ledger in a story published June 11. Dreyfus said his hope is that hospitals grouped in the high-cost tier will be motivated to reduce their prices.

Tufts Health Plan of Massachusetts and Harvard Pilgrim Health Care are now offering their own versions of similarly tiered health plans.

In Rhode Island, as the state begins to build its infrastructure for its R.I. Health Benefits Exchange, plans are for the new exchange to serve as an online, transparent marketplace, enabling more than 840,000 Rhode Islanders under age 65 to research and compare competing health-insurance plans.

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