• Smart tiers

    Last night I posted a brief comparison on the MA cost control bills. In the comments, Mike asked about “smart tiers”

    First of all, let’s just acknowledge the marketing. Who wouldn’t want socks made with “Smart Wool?” Why eat plain popcorn when you can have “Smart Food?” And now we have “Smart Tiers” in health plans.  Brilliant idea (or, dare I say, smart?)

    Second, who gets credit?  It appears that this term was invented right here in Boston (the relevant Google results are all local). Our friends at WBUR’s  CommonHealth attribute the term to House Rep. Steve Walsh and Harvard KSG economist Amitabh Chandra.  (prior “dumb tier” coverage here)

    Third, what does the House Bill do?  (full pdf here)

    • Health plans can offer differential co-pays, based on the cost and volume of the service
    • The hope is that consumers will vote with their feet and go to the less expensive facility for that MRI
    • In time, this undermines BigHealthSystem market power and partially unbundles their services
    • All of the above with actual market forces instead of government diktat

    Fourth, who does it apply to?

    • Most of the Smart Tier provisions are limited to the small group insurance market
    • MassHealth (Medicaid),  the Connector, and other state plans can also use Smart Tiers
    • ERISA plans don’t need the State’s permission to try Smart Tiers
    • Short answer:  potentially, everyone except Medicare (for now)

    Expect BigHealthSystems to attack this idea. Cautious Boston Globe editorial here; previous TIE coverage on insurance market power here (FAQ) and here (Academy Health blog).

    Other smart things:  water; guns; toilets, and candy.


    • Rather than setting a different copay based on each service-provider combination in the state, why not just set a single coinsurance for all services, or service-specific coinsurances? Both strategies achieve the demand-side price-sensitivity smart tiering tries to achieve. .

      What are the benefits of smart tiering over coinsurance? The former seems more administratively burdensome.

      • But some providers may be better and/or cheaper by service. Shouldn’t the consumer who needs that specific service have an incentive to receive care from them?

    • Yes, but I think a coinsurance would allow for such an incentive. If a colonoscopy cost $2000 at MGH and only $800 at Beth Israel, and I need to pay 15% of all my services, then I’ll be incentivized to go to BI because it would save me about $200. If BI is more expensive on a different procedure, then I would have an incentive to go to MGH instead for that procedure.

      The nice thing about the coinsurance is that insurers don’t need to actively rate each provider by assigning a tier. They could just pick a single coinsurance across all services or for specific services.

      I suppose the downside is that it might be more difficult for patients to contact providers and compare prices than it is for patients to just check the tiering with the insurer.