How to Save Money with a Tiered Healthcare Plan

Asking these 4 essential questions can help you decide whether a tiered plan is right for you. 

Woman reviewing a tiered healthcare plan

It’s the centerpiece of every wedding celebration: a giant cake with three beautifully decorated tiers. And the top tier — adorned with little figurines of the smiling newlyweds — is the showstopper.

If you’ve seen a wedding cake, you already know a little bit about tiered health insurance plans: Your network of doctors and hospitals is divided into layers, or “tiers,” based on their cost. The amount you pay is determined by which tier the provider is in.

Here’s how a tiered health insurance plan works

From the top down:

Tier 1: The doctors and hospitals in this small group meet the highest standards of care. The icing on the cake: When you use these top-tier providers, your out-of-pocket costs may be lower.

Tier 2: In this group, the doctors and hospitals are part of a larger network of providers. They may not have the star power of Tier 1, but they’re still very good. The hitch: You may pay more for their services.

Tier 3: Like the bottom layer of the cake, this is the largest group to choose from. But you’ll likely pay the most out of pocket for the doctors and hospitals in this tier.

While you’ll always have the option of choosing from any of the tiers your plan offers, you’ll save money when you stick with Tier 1. For example, your copay may be just $10 when you see a doctor in Tier 1, while you might pay $20 for a doctor in Tier 2 and $50 for one in Tier 3.

Those savings can add up. A 2017 Harvard study showed that members of tiered plans lowered their medical expenses by 5% per year compared with members with similar plans without tiered networks. For someone whose out-of-pocket healthcare costs are $7,500, that amounts to a decrease of $375. The study found that the savings were even higher — more than 6% — for members who used health plans with tiered provider networks for outpatient radiology.

“With a tiered plan, you have a sense of security knowing that you can pick from a group of doctors who have great quality ratings and whose fees are reasonable too,” says Jan Stone, a board-certified patient advocate in Austin, Texas. “The providers have been carefully vetted, and the hospitals have been screened on measures like patient safety and cleanliness — for instance, do they have bed alarms and a good protocol to prevent falls?”

That all sounds good, but there’s a catch: You’ve got to study your plan carefully and make the choices that are right for you. That can take a bit of effort — but it’s worth it. “People spend a lot more time shopping for jeans than for healthcare,” says Stone.

These questions can help you decide whether a tiered health plan is right for you.

1. What do you pay for healthcare in a typical year?

Do the math. “Add up all your expenses,” says Martine Brousse, a patient advocate and certified mediator based in Southern California. “Calculate how much you pay in premiums, how much your deductible is, and what your out-of-pocket expenses are. What’s your copay, and how many times do you go to the doctor each year?” Then estimate your savings by comparing the costs of your current plan with those of the tiered plan you’re considering.

Tip: Don’t forget about your medications — they can be pricey. Remember, there are also tiers within your plan’s formulary (that’s the list of medications covered by your healthcare plan). Find out which tier your prescriptions are in.

2. What does your future look like?

You don’t have a crystal ball, but think carefully about what might be coming up in your life. “No matter how healthy you think you are, do an honest self-assessment,” advises Stone. “It can help you make the right decision.” Learn how a tiered plan would cover the expenses you might be anticipating.

Tip: Be honest: Are you considering having a baby? Is there a knee replacement in your future? Do you have a family history of cancer? Answering these questions can help you make decisions about the specialists and hospital services you might need to use in the year ahead.

3. Do you have a preferred provider or hospital?

Maybe you think your doctor is excellent and you couldn’t imagine going to anyone else. Perhaps your family has always received excellent care at the same hospital. In that case, you’ll need to make sure your preferred professionals are in Tier 1 of the new plan. If they are, it may be right for you. “If your doctor or hospital are in Tier 1,” says Stone, “that plan may be a great deal. But if you have a chronic condition and have a relationship with a doctor who is not in the network, you need to decide if you want to change doctors or pick another plan.”

Tip: If you’re considering switching providers anyway — or if you’re new in town — this could be a great opportunity to save money by choosing a doctor and hospital from Tier 1.

4. Where do you live?

Geography can play a big role in making a tiered health plan work for you. Maybe all the Tier 1 doctors are in a different part of town, or the only Tier 1 hospital is 50 miles away. For some families, geography can be a barrier to certain plans, especially in rural areas where there are fewer healthcare facilities.

Stone points out another consideration: Now that you can keep a child on your insurance until age 26, a tiered plan could make that difficult. “If you have a 23-year-old son who lives in another state, he may not be able to visit one of your plan’s Tier 1 doctors.”

Tip: If you have an emergency and need to get to the closest hospital in a big hurry, don’t worry — even if your network hospital is miles away. “The law says you can go to any emergency room,” Stone points out. “But as soon as you’re well enough to be transferred to your network hospital, you’d better go — or you could really get slammed.”

The bottom line on tiered plans

Learning the ins and outs of a tiered health plan may take some work, but it’s worth the effort. It can connect you with quality doctors and hospitals at the lowest cost. And choosing the right providers can make a big difference in your health outcomes. Studies show that people who are actively engaged in their care have better outcomes and lower costs. They’re also more likely to be satisfied with the experience.

Having the right healthcare plan can help you live a happier, healthier life. So find out if a tiered plan is right for you.

Additional sources
Tiered health insurance plans can reduce costs: Health Affairs (2017).
Enrollment in a Health Plan With a Tiered Provider Network Decreased Medical Spending by 5 Percent
How taking an active role in healthcare decision-making promotes prevention: Studies in Health Technology and Informatics (2017). “Engaging Patients in Decision-Making and Behavior Change to Promote Prevention”