Defending Tiered Health Plans

Tiered health plans cutting costs, restricting options in today’s Boston Globe raises reasonable questions about new benefit designs from Massachusetts insurers that require members to pay more when they seek services at hospitals that are not on the preferred list. The article profiles Glenn McCarthy, a 48 year old man from Weymouth who faces $4500 in out-of-pocket costs after obtaining services at 2 hospitals that are in the higher cost tier. I empathize with the man and his wife, but overall I’m very much in favor of the availability of tiered plans like his.

To summarize the story:

McCarthy was told he needed surgery for “an aggressive form of prostate cancer”
He could have surgery at Faulkner Hospital in “more than a month” where his co-pay would be just $150
He could have surgery at the Brigham and Women’s in about 2 weeks –with the same surgeon– but he’d have to make a $1000 co-payment because the Brigham is in a higher cost tier for the Blue Cross Blue Shield plan he has
He opted to go to the Brigham because “his doctor advised against a delay.”
He had complications after surgery and went to South Shore Hospital in Weymouth, also in the higher cost tier, and racked up another $3500 in out-of-pocket expenses

I don’t know the specifics of the case and am not a clinician, but I’m going to go ahead and make some observations about this situation anyway.

It’s noteworthy but not surprising that the same surgeon was going to perform the surgery whether at the Faulkner of the Brigham. Have a look at the Faulkner website and you’ll see it’s actually branded as a Brigham and Women’s Hospital. It’s not just some off-price, low tech competitor as the article implies. The home page features a big come-on for the Brigham and Women’s Center for Robotic Surgery at Faulkner Hospital
I’m skeptical about the scheduling delay. Sure it would be a drag to have to wait more than a month for urgent surgery, but even the two week timeframe for the Brigham isn’t very impressive. Maybe the McCarthy’s don’t know how to navigate the system, but I’m willing to bet that a well-informed consumer and the surgeon could have had the timing pushed up if it was medically necessary
It’s too bad McCarthy got complications and then went to his local hospital, which is also in the higher tier. (By the way, can you imagine how the story would have read if McCarthy had gone to the Faulkner and ended up with complications. Would the article have blamed that on the lower end hospital?) But his situation is the exception, because very few hospitals in Massachusetts are actually in the higher tier. Two lower tier hospitals –Quincy Medical Center (part of Steward) and Milton Hospital (part of Beth Israel Deaconess)– are within 10 miles of Weymouth

Certainly $4500 is an unwelcome expense, one that the McCarthy’s are struggling to pay off. And yet it’s small change in the context of overall health care costs and even relative to the costs of the McCarthy’s health insurance.

A typical Massachusetts family health insurance premium is in the range of $1500 per month or $18,000 per year. (I don’t know what the McCarthy’s pay.) At that rate, the $4500 represents only 3 months of premium. Meanwhile, tiered plans are priced at least 12 percent below non-tiered plans. That means about $2200 per year on an $18,000 policy. So even if McCarthy wanted to go to higher tier hospitals he’d still break even financially as long as he only had this type of unfortunate episode once every two years.

In the meantime we need to consider tiered networks more broadly than just this case. Consider:

The introduction of tiered networks has enabled the Massachusetts Health Connector to enroll everyone who qualifies for fully subsidized insurance, despite the state’s difficult fiscal situation
Tiering is meant to incorporate quality as well as costs. The two should generally trend in tandem, e.g., if costs of complications are included
The ratings are not static and hospitals can shift between tiers year-to-year. I would expect South Shore Hospital to do everything it can to get onto the lower tier list. Why shouldn’t they be as cost-effective as Quincy and Milton?
I am sympathetic to the plight of high cost, prestigious hospitals such as the Brigham. But they, too, can make improvements or reconfigure their networks. For example, I would argue that the Faulkner affiliation is a good example of how this can be done
I note that Dana Farber and Children’s are upset about being listed on the higher tier. I know that I would want those hospitals in my network. Yet this may also provide an opportunity for Blue Cross or its competitors to add benefit designs that have multiple tiers rather than just two, or for these institutions to demonstrate that their higher quality justifies their higher costs
Hospital systems such as Steward have an opportunity to carve out a major market opportunity as high efficiency, high quality hospital systems –and inject some welcome “value” competition into the provider market