Tiered Plans Lower Costs for Some Patients, But at What Price for Others?

Andrew Kitchenman | December 3, 2015 | Health Care
Legislators in Assembly hearing begin to sketch out response to Horizon’s controversial new OMNIA coverage

Lawyer Steven Goldman, former state Commissioner of Banking and Insurance, is representing a group of hospitals in a lawsuit opposing Horizon's OMNIA plan.
There’s broad agreement in New Jersey that patients will benefit from the lower healthcare costs of tiered insurance coverage.

But there’s little agreement on anything else about these plans.

In tiered plans, patients pay less out of pocket if they visit certain hospitals and doctors designated as Tier 1 providers.

Hospital executives and elected officials say that the introduction of the largest tiered plan yet – Horizon Blue Cross Blue Shield of New Jersey’s OMNIA – could lead to the closing of a number of hospitals left out of Tier 1, if many of their patients move to providers that will cost them less.

They’re calling for a new approach to tiered plans, in which any healthcare provider would qualify if they meet objective criteria set by insurers.

But insurance industry experts say the very features that exclude some hospitals from Tier 1 – including giving insurers the power to determine who’s in and who’s out – are what make the tiered plans work.

Most of Horizon’s 3.9 million members are expected to remain in traditional plans without separate provider tiers. In these plans, patients still pay the same amount out of pocket for all providers in Horizon’s network.

However, the company expects roughly 250,000 members to choose OMNIA plans offered through their employers or the individual insurance marketplace, with that number growing in future years.

While criticism of OMNIA is mounting, it may be too late to affect the launch of the plans, which is set for January 1, with state public workers able to access OMNIA on December 26. But that doesn’t mean Horizon executives can rest easy.

Lawsuits aim to block plan

While Horizon has been hitting the airwaves with commercials touting OMNIA, the plan is the target of two separate lawsuits by hospitals, and it also could be affected by legislation to be introduced next week that sponsors say would increase the transparency and bolster state regulation of tiered plans.

One lawsuit, pursued by 11 hospital systems with 17 hospitals in Tier 2, alleges that the Department of Banking and Insurance approved the plan before making sure that OMNIA met state requirements.

Lawyer Steven M. Goldman, a former DOBI representing the hospitals, said that while tiered networks can be built in a way that serves the public interest, “it just wasn’t done right here.”

DOBI Acting Commissioner Richard J. Badolato issued a 40-page order denying a request by the Tier 2 hospitals to delay OMNIA’s implementation. Badolato noted that the state has received no complaints from hospitals about a smaller tiered plan, called Advance, that Horizon previously offered.

However, that plan was only offered in the individual market and affected a much smaller number of people than OMNIA is expected to affect.

Badolato also said that the department applied current state regulations and found that OMNIA met state requirements for the adequacy of its network.

His order also addressed the fact that OMNIA doesn’t include any hospitals in Burlington County that offer obstetrics, a service that state regulations require insurers to cover.

As a way of filling in this gap, Badolato noted, Horizon promised to reimburse the obstetrical services offered through Tier 2 Virtua Memorial Hospital in Mount Holly at Tier 1 reimbursement levels, while paying for all other services in the hospital at Tier 2 levels.

The legal challenges from the hospitals are ”either unsupported, contradicted by the facts and evidence of the Department’s review, or misinterpretations of the applicable network adequacy standards and the regulatory role and purpose of the Department’s review,” Badolato wrote.

Legislation planned

Sen. Nia H. Gill (D-Essex) and Sen. Joseph F. Vitale (D-Middlesex) said they will introduce a bill next week that would increase the transparency and regulation of tiered plans, and “address tiered networks introduced in 2015” like OMNIA.

Linda Schwimmer, president and CEO of the New Jersey Health Care Quality Institute, said that state law and regulations pertaining to insurance networks are “woefully outdated.” They were written in the 1990s, before the advent of tiered networks in the state.

The second lawsuit, by Saint Peter’s University Hospital in New Brunswick, alleges that Horizon failed to fulfill its contract with the hospital in its handling of OMNIA. For example, Saint Peter’s executives say the hospital was entitled under their contract to be a member of any Horizon network that it met the criteria for, including a “subnetwork” like Tier 1.

Saint Peter’s executives estimate that the hospital would lose $36 million in the first year of the OMNIA plan.

Among those most vocal in their disapproval of OMNIA are mayors of cities whose hospitals were left out of Tier 1.

Trenton Mayor Eric Jackson expressed dismay that both of that city’s hospitals – St. Francis Medical Center and Capital Health Regional Medical Center – were designated as Tier 2 in OMNIA.

“Who wants to sign up for Tier 2 of anything?” said Jackson, who described Trenton as a “Class 1 city on every level.”

Mayor alleges ‘collusion’

Christian Bollwage, mayor of Elizabeth, said OMNIA will benefit hospitals that serve wealthier areas at the expense of those serving disadvantaged residents. He called it an extreme case of “collusion.” His city’s only hospital, Trinitas Regional Medical Center, was relegated to Tier 2.

Horizon executives have acknowledged that the terms “Tier 1” and “Tier 2” may have harmed OMNIA’s reception, but were never intended to convey that Tier 2 hospitals aren’t high quality. They say that the terms are used by the insurance industry and the federal government.

Warren County Freeholder Director Edward Smith expressed concern that residents of his county could have to drive long distances to be treated at a Tier 1 hospital. Both county hospitals — St. Luke’s Hospital-Warren Campus in Phillipsburg and Hackettstown Regional Medical Center — are in Tier 2. Hackettstown could join Tier 1 if it’s sold to Atlantic Health System.

“How can such far-reaching actions upon the delivery of healthcare in this state ever get to this point with no transparency?” Smith asked.

Assemblyman Herb Conaway Jr. (D-Burlington), a doctor at St. Francis, sketched out how he would like to see tiered plans designed by insurers. He is calling for an open process that would allow hospitals and doctors to join a tier if they met objective standards.

Conaway also expressed hope that state regulators would continue to check whether patients are facing obstacles in accessing healthcare after OMNIA is in place. But Assemblywoman Elizabeth Maher Muoio (D-Hunterdon and Mercer) said that if the state waits until then to review OMNIA’s adequacy “it could be too late” for the providers who lose patients.

Assemblywoman Nancy F. Munoz (R-Morris, Somerset, and Union) noted that OMNIA allows patients to continue to go to Tier 2 providers, but at higher out-of-pocket payments. .

Assemblyman Reed Gusciora (D-Hunterdon and Mercer) expressed concern for residents who live far from Tier 1 hospitals “that are going to be snookered” into buying OMNIA plans, only to find that they have to pay more out-of-pocket to visit nearby providers.

Mishael Azam, chief operating officer of the Medical Society of New Jersey, emphasized that OMNIA affects doctors as much as it affects hospitals. She said that consumers may choose an OMNIA plan based on the idea that it will offer lower deductibles – the out-of-pocket costs that patients must pay before insurance coverage starts. But these consumers may not realize that if they want to visit Tier 2 doctors, they will have to pay a higher deductible, Azam said. For example, one OMNIA plan has no deductible for patients visitng Tier 1 providers, but a $1,000 deductible for those visiting Tier 2 providers.

“That’s a transparency issue on the consumer side,” she said, adding: “It’s going to be really hard to figure out.”

Conaway said that Tier 2 doctors could feel pressure to sell their practices to Tier 1 hospitals, or could lose longtime patients – reducing the effectiveness of the patients’ healthcare.

Conaway said he believes there’s a way to make tiered plans open and transparent to providers, while still lowering costs. But defenders of these plans expressed concerns with legislative action that would affect OMNIA.

Benefit to consumers

Jessica Waltman, a representative of the New Jersey Association of Health Underwriters, said that it’s important for insurers to be able to offer lower-cost plans.

“Now is not the time to limit insurers’ ability” to reduce costs, Waltman said.

And Sarah M. Adelman, vice president of the New Jersey Association of Health Plans, said that creating open tiered plans would eliminate the cost benefit of offering these plans, since any provider could join them. Insurers entice providers into joining tiered plans with the promise of more patients if the providers accept lower reimbursements.

When there are fewer providers in Tier 1, each provider is able to gain more patients from the Tier 2 providers. This is the reason why they’re willing to accept lower reimbursements.

If the state requires that all providers are able to enter Tier 1, then there won’t be a guarantee that those who do enter Tier 1 will be able to gain as many patients, since those patients who choose to move from Tier 2 providers to Tier 1 providers will be divided among a larger number of providers. Therefore, providers will have less of an incentive to accept lower payments.

Kathy Hempstead, a New Jersey-based national expert on health insurance, said tiered plans have an advantage over approaches tried by insurers in other states, such as closed or narrow networks in which only a limited number of providers are in the network. In these plans, patients receive no coverage if they choose to go to providers outside of the network. In tiered plans, patients just have to pay more to go to Tier 2 providers.

“It’s trying to give the consumer the best of both worlds, in a way,” with lower costs and a broader network, said Hempstead, who directs the health insurance coverage work of the Plainsboro-based Robert Wood Johnson Foundation.

Hempstead said that allowing insurers to choose which providers are in Tier 1 is essential to having tiered plans.

“It’s understandable why the excluded providers are very upset, but it doesn’t necessarily mean Horizon is obligated to explain why they included the providers that they included,” she said.

Hempstead said that state officials may have other tools at their disposal to aid urban hospitals short of curtailing insurers’ ability to design the plans.

The state could raise the rate it reimburses providers for Medicaid patients, which would help urban hospitals. In addition, other insurers could add the OMNIA Tier 2 hospitals to the lowest-cost tier of their own tiered plans.

Hempstead added that when consumers say what they’re looking for in insurance, they’re looking for lower premiums, copayments, coinsurance, and deductibles.

“They feel that most providers are pretty good or they’re good enough for me,” as long as the costs are kept down, she said.

Horizon executives and DOBI officials declined to attend the joint meeting yesterday held by the Assembly Health and Senior Services Committee and the Assembly Regulatory Oversight Committee. Represenatives of both the department and the company were grilled at a state Senate hearing in October, before the lawsuits were filed.