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Consumers may pay more with tiered-hospital health plans

When both the demand and price for brand-name prescription drugs skyrocketed in the 1990s, employer-sponsored health insurance plans created tiered pharmacy co-payments to save money and preserve consumer choice. Now those same plans that charge you more for getting brand-name prescription drugs are developing similar tiered plans for hospitals.

"If someone in your family is very sick, you'll go anywhere, do anything, pay anything to make them well."

Under a tiered hospital plan, you're charged a less expensive co-payment for receiving medical services from a hospital that offers the best rates (typically a community hospital) vs. a more expensive facility, such as a teaching hospital. Supporters say hospital tiering is the next logical step for employer-sponsored health plans trying to rein in runaway health insurance costs. Critics charge that tiering will ultimately penalize consumers, particularly the sick who often need the medical expertise found at teaching hospitals but who may not be able to afford the higher price.

Some consumer advocates are especially concerned that health insurers will have consumers over a barrel. "If someone in your family is very sick, you'll go anywhere, do anything, pay anything to make them well," says Bob Hunter, insurance analyst for the Consumer Federation of America. "Insurance companies know the consumer will pay the difference."

How does it work?

Only a few health insurance plans currently offer hospital tiering and only in select regions, but others are likely in the works. They include Blue Shield and PacifiCare in California and Blue Cross and Blue Shield and Tufts Health Plan in Massachusetts. CIGNA is rolling out tiered hospital rates in 2003, but has yet to announce its introductory markets. Humana and UnitedHealthcare also have tiered hospital plans in development but declined to comment.

Blue Shield of California's "hospital network choice" program is being offered to small- and medium-sized employer groups and individual policyholders, effective April 1, 2002. Under this program, hospitals are categorized as "choice" or "affiliated," depending on their cost. Blue Shield members who choose "choice" hospitals are charged the same out-of-pocket co-payment as before. Members who select "affiliated" hospitals are charged a higher co-payment. Emergency services at any hospital are exempt from the program and are not subject to higher co-payments.

health plans

Hospital tiering is part of the latest trend in health insurance. For more information, read Consumer-driven health insurance gains momentum.

A typical top-tier co-payment for HMO nonemergency services will be a few hundred dollars more per admission, says Blue Shield. According to Blue Shield, less than 20 percent of hospitals in its network have been classified as "affiliated." Several measures are used to determine each hospital's designation, including hospital costs by geography and the type of services provided. Hospitals whose costs are substantially higher than the average earn the "affiliated" designation. Blue Shield says each hospital's designation is based solely on costs and is not an indication of the quality of medical care offered by the facility.

PacifiCare is offering its "Select Hospital" plan to medium- and large-sized employers in California and is similar to Blue Shield's program. However, PacifiCare waives all co-payments for medical services received by members using "select" hospitals and charges much larger co-payments for staying at "nonselect" hospitals. Depending on which plan type you choose, you can wind up paying anywhere from $100 to $400 more per day for staying at a "nonselect" hospital.

Will tiering help or harm?

Consumer advocates are divided on whether hospital tiering will ultimately harm or help consumers. Some, including Hunter, worry that consumers will be cut off from higher-quality care, despite insurers' reassurances that tiering is based solely on cost rather than quality of care. "Let's face it, higher quality care costs more," says Hunter and tiering encourages some people to focus on the cost of medical care rather than its quality. "People should go to the best doctors, not the cheapest," he says.

"People should go to the best doctors, not the cheapest."

Hunter also questions whether health insurers actually save money in the long run if their members seek low-cost treatment and then must return to their doctors if their medical problems go undetected or remain unsolved. "Insurance companies like to point at quarterly figures and say, 'Look how much we saved by doing this!' But do these practices really save money in the aggregate?"

Other consumer advocates, however, are not so sure that hospital tiering will be bad for consumers. "One-size-fits-all health insurance doesn't work either," says Sue Blevins, president of the Institute for Health Freedom. "Then no one gets the highest quality care. In the supermarket, not everyone can afford the best quality food, but does that mean the supermarket shouldn't offer it to those who can afford to pay?"

According to Blevins, the scenario doesn't work in the reverse, either. If the supermarket offers the best food to everyone at the same low price, she says, it would quickly go out of business.

"But that doesn't mean we shouldn't discuss ways to help people pay for their food — or health care," says Blevins. "We should just separate the issue of choice and how to pay for it."

Blevins says that one issue that will have to come front and center in the tiering debate is the question of how insurers determine price. The formulas insurers use to price their health insurance products are typically kept secret. Even court orders have done little to force insurers to supply the formulas to the public because the companies claim it's "proprietary" business information.

"Pricing information has got to be available to the consumers," says Blevins, who points out that no one would shop at a grocery store where none of the merchandise had price labels.

It's a point well taken, says Maureen Sullivan, a senior vice president with the Blue Cross and Blue Shield Association — especially when insurers and employers are asking consumers to shoulder more of the burden for choosing and paying for their health insurance plans. No doubt about it, "the stakes are going to be higher," says Sullivan. "We are going to have to make sure consumers get that information."

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