How Tiered Networks Work
Tiered networks assign providers to tiers based on cost and quality metrics. Members pay lower cost-sharing when they use Tier 1 (preferred) providers and higher cost-sharing when they use Tier 2 (standard) providers. Out-of-network providers are typically covered at the highest cost-sharing level.
| Tier | Provider Type | Member Cost-Sharing |
|---|---|---|
| Tier 1 (Preferred) | High-quality, lower-cost providers; preferred rates | Lowest (e.g., $20 copay or 10% coinsurance) |
| Tier 2 (Standard) | Standard in-network providers | Medium (e.g., $40 copay or 20% coinsurance) |
| Tier 3 (Out-of-Network) | Any provider | Highest (e.g., 40% coinsurance after separate deductible) |
Centers of Excellence
Centers of excellence (COE) programs are a specialized form of tiered network for high-cost, high-variation procedures — joint replacements, cardiac surgery, cancer treatment, and bariatric surgery. COE facilities have demonstrated superior outcomes and often lower total cost of care. Members who use COE facilities pay little or no cost-sharing; members who use non-COE facilities pay standard cost-sharing.
Tiered Network ROI
IQ Insight
Tiered networks typically generate 5–15% cost savings compared to standard PPO networks — less than narrow networks, but with significantly less employee resistance. The savings come from two sources: members who voluntarily choose Tier 1 providers to save money, and the negotiating leverage that comes from offering preferred tier status to providers who agree to lower rates.