What is meant by "network tier" in a health plan?

The term "network tier" in a health plan refers to levels within a health plan's provider network that influence the costs incurred by members depending on which providers they choose to use. Health plans often categorize their network into tiers, typically distinguishing between preferred providers (often referred to as Tier 1) and those that may have higher costs associated with them (such as Tier 2 or Tier 3 providers).

Members who select providers from the preferred tier usually enjoy lower costs for services, such as lower copayments and coinsurance, because these providers have agreed to contracts that offer discounted rates to the insurance plan. On the other hand, utilizing out-of-network providers or those in higher tiers typically results in higher out-of-pocket expenses for the member.

This tiered approach is designed to incentivize members to choose certain healthcare providers while managing the overall costs associated with a health plan's services. This structure ultimately impacts the member's financial responsibility and access to care within the health plan.