June 24, 2022

A Brief Treatise on Network Tiering

Over 90% of Americans have some form of health insurance. Unfortunately the average user rating for health insurance plans today is 9 out of 100, yet prices are still skyrocketing. Clearly something is wrong. To solve this, health plans need to get personal! Imagine a plan specifically for diabetics, or a health plan designed around the Asian American population in Southern California. 

The problem is that health plans are hard. You need engineers, operations teams, super complicated softwares. And even then, the current technology wasn’t built to handle today’s highly fragmented and digital-first health ecosystem. You may have a great idea for a health plan, but the cost and effort required means it never sees the light of day. 

At Flume, we provide the complete back-end for building and launching configurable health plans. From tooling and workflows to advice on risk and design, you can use Flume to go from idea to ID cards in as little as 6 months. 

Health companies from big name brand insurance to small tech startups use Flume to launch new plans that are tailor made to meet the specific needs and wants of their customers. We believe this change will unlock better health outcomes and higher customer satisfaction in a way that was never possible before. 

Today, we are seeing a change in thought, going from “Health Plan as a means of access” to “Health Plan as a means to drive specific results.” 

One question that continually comes up early in the conversation is how the networks function. What is perceived as a very complex or murky corner of the health insurance world is in fact rather simple, once you shine light on it. This article explains how network tiering works, what to consider as you set out to build a health plan, and uses visuals whenever possible to get the point across.  

PS- We define the word network here as any list of providers who have agreed to be paid by an entity. 5 direct contracts owned by one employer could be a “network” just the same as BCBS’s 2,000,000 providers are a “network”. Think “list of doctors to be paid”.  

Start with your members in the center. Always. 

Tier 01 is the direct execution of your thesis. How will this plan drive better outcomes (defined as healthier people, lower costs, whatever you want) than what’s currently available in your target market (probably a broad access plan where members “wander the PPO wilderness”)? 

Tier 01 should service 80%+ of members’ needs, and should be focused on driving your thesis. There are a lot of flavors to the new Personalized health plan. Broadly, we see plans being build on the backs of any of the below, or a patchwork of several:

  1. A DPC organization
  2. A local hospital system willing to partner on discounts as the “anchor” system for a geography
  3. Bundled surgery “networks” such as Sano or Coral
  4. Direct contracts you’ve developed yourself


  1. Does your market demand bricks-and-mortar, virtual first, both? 
  2. How does steerage and guidance work? 
  3. Consider that most of the time, the member’s first line of offense will be some sort of care navigation specialist who is familiar with the network(s) available, and incentivized to steer patients to the best option that will drive the intended outcomes of the plan. (some examples)
  4. How will you incentivize utilization?
  5. Where do referrals go—stay in Tier 01 network? Prioritize Tier 02? Doesn’t matter? The answer is probably based on the network of providers you’re bringing into the health plan. 

Tier 02 is a broader PPO-style network. 

This serves a few purposes. When Tier 01 doctors need to refer outside of their networks, you look first to this network. Tier 02 also services members who may be out of town, who have college-age dependents in other states, or who for whatever reason (and despite all incentives) chose not to visit a Tier 01 provider. The point is, they’re still covered with a robust network. 


  1. The network needs to be willing to play the Tier 02 role and allow for steerage and guidance. That’s why you don’t see CIGNA anywhere on this list. 
  2. Tier 02 can also be a patchwork Not every network has broad coverage in every geography. You may wind up using several networks in order to ensure coverage. What’s required here will tie back to your go-to-market and thesis for this plan. You can update the Tier 02 networks over time. 
  3. It’s true that network discounts at broad rental networks aren’t always as steep as the larger “brand name” network. This is compensated for by the fact that your Tier 01 thesis is where the dollars are going to be saved—you should not have your vast majority of visits happening in Tier 02. See our ebook on cost containment levers every plan can and should consider. Also by the fact that you’ve had a stop loss partner at the table since the very beginning of your plan build, who will take into account your full plan design and price appropriately. 

Out-of-network still needs coverage.

Generally we recommend health plans choosing to set OON rates via Reference Based Pricing. A repricing entity like 6 Degrees is present to take the claims, reprice them, and submit to the TPA. There’s also balance bill protections built in, since that is a risk. Again, the idea here is that if a member chooses to go out-of-network for whatever reason they are still covered, but the price and share of member responsibility will expand as you go outside the rings.

Networks represent one layer of the health care “stack” that makes up the back-end of every health plan. Though they are at the heart of the plan, networks can and should be viewed as modular—a means to an end, not the DNA of the plan itself. If your networks don’t feed the plan’s thesis and design, change them. 

Tying this all together into the larger picture of the health plan may seem incredibly daunting, but that is why Flume exists. At Flume, we provide the complete back-end for building, launching, and running highly configured health plans. From tooling and workflows, to advice on risk and design, to customer support phone lines, use Flume to go from idea to ID cards in as little as 6 months. 

If you want to get started bringing your vision for member outcomes and savings to life, contact us today.