This paper studies an innovative tiered plan design using data from New Hampshire.

Tiered plans reduce mean spending by 4.5% to 6.3% on gastrointestinal endoscopic procedures.

Patients respond non-negligibly to tiered prices but not to traditional deductibles or coinsurance rates.

In this paper, I study tiered cost sharing, an innovative incentive structure designed to steer patients toward low-cost providers using large out-of-pocket price differentials. Using administrative data from New Hampshire, where two large insurers utilize tiered pricing programs, I estimate the effects of tiering on choices and spending for common gastrointestinal endoscopic procedures. I first conduct a difference-in-differences analysis using the rollout of one insurer’s tiered option. I then develop and estimate a demand model to explicitly compare the tiered design with other common plans. Both the reduced form and structural models imply that the tiered plans are associated with 4.5%–6.3% less in mean per-episode spending than high-deductible and coinsurance-based plans, and do not affect the likelihood of seeking care. I find evidence that the savings is in part due to a salience or “simple pricing” effect whereby patients respond to tiered out-of-pocket prices but not to traditional deductibles or coinsurance rates.

Insurance plan design

Tiered pricing

Preferred networks

Health care demand

Published by Elsevier B.V.