What is Network Tiering?
Network tiering is a plan design strategy where in-network providers are grouped into tiers based on cost efficiency, quality metrics, or both. Employees receive the highest benefit level when using Tier 1 providers and progressively lower coverage at Tier 2 or Tier 3 facilities.
The goal is to steer utilization toward cost-effective, high-quality providers without restricting access entirely. Employees retain the freedom to visit any in-network provider but have a financial incentive to choose preferred facilities.
Establishing Tier Criteria
Tier placement should be based on objective, data-driven criteria: average cost per episode, readmission rates, claims dispute frequency, and patient satisfaction scores. Purely cost-based tiering can inadvertently direct employees away from higher-quality providers.
The Peterson-KFF Health System Tracker notes that employer strategies to reduce costs through network configuration include tiered networks, narrow networks, and centers of excellence. The tier structure should be reviewed annually using updated claims data, as provider performance changes over time.
Employee Impact and Communication
Tiering works best when employees understand the rationale and can easily identify which tier their preferred providers fall into. A searchable provider directory with clear tier labels, accessible via mobile app and web portal, is essential.
Communication should emphasize that all tiers provide quality care and that tiering reflects negotiated rate differences, not clinical quality judgments. Framing tiering as a way to keep plan costs sustainable resonates better than positioning it as a restriction.
Measured Outcomes
According to the Peterson-KFF Health System Tracker, network configuration strategies are among the most commonly used employer tools for cost management. However, the specific savings depend heavily on the local provider market, the degree of price variation between providers, and employee willingness to shift utilization.
Employee satisfaction impact is typically neutral when communication is handled well. Plans that implement tiering without adequate employee communication see higher complaint volumes and negative sentiment, underscoring the importance of change management.