During the Open Enrollment period, MGEC members are asked to make a series of selections about who their plan administrator will be as well as which primary clinic they will use for the upcoming year. While it might appear at the outset to be a strange and complicated set of decisions, they were created by the legislature four decades ago to induce competition at almost all levels to produce one result: quality care at a competitive price. As one of the largest purchases of healthcare in the state with over $1.4 billion spent in FY25, SEGIP uses its leverage to bargain for better rates.
Any statewide insurance plan must balance two competing factors: maintain as much access as possible so people can see the doctor they want, and work to keep care as affordable as possible. A plan could have wide-open access to any provider, but it would be very expensive; limiting access would cost less, but there wouldn’t be many provider options. The tiered system addresses this tension with the rubric of competition.
By having 4 tiers, economic incentives are created for providers to keep costs down: most of the time, consumers want to spend less; and providers want to be in a lower tier so more people select them. SEGIP and the plan administrators negotiate to determine which providers land into each tier. SEGIP uses these bids to encourage providers to focus on quality, not just quantity. About 90% of SEGIP members pick a clinic in one of the two lowest tiers – there is power in numbers to pressure providers to be more efficient.
Tiering works well when there is competition among multiple providers. But we’ve seen a wave of mergers that reduce competition, especially outstate. If an area has two dominant provider systems, for example, one might offer lower rates for one year to get into a lower tier – then raise them the next. This puts SEGIP members on a seesaw as the lower tier bounces between the two networks. SEGIP is responding with a new concept: offering longer contracts to stabilize prices and keep people with their preferred providers. But fewer provider systems mean less competition. This leads to higher prices even if consolidations stabilize their systems.
Now entering its 40th year, the tiered plan saves members approximately 10% of total costs than if tiering didn’t exist. That might not sound like much but know that the total medical expenditures were over $1.2 billion in FY25. There are limitations: the system is designed to rate providers on their relative efficiency, how they relate to each other. Tiering cannot solve systematic issues such as costs that rise across all providers, or if provider systems consolidate and destroy the competition that tiering is designed to induce. And trends like GLP-1s, which cost the plan over $83,000,000 last year, also create strong upward price pressures.
In spite of the challenges, MGEC is absolutely committed to working with the other state unions to protect accessibility and value the plan offers. We expect the state to push new costs on to employees through dramatic changes to the structure of the plans. Changing the premium split (which would have a very dramatic spike in what you pay out for premiums), increasing current deductibles, creating new deductibles, and increasing copays are examples of what they’ve proposed in the past. We will fight any such proposal, and we will work with our labor partners to resist it as a coalition. The rates increases we see under the current structure are bad enough.
We will keep MGEC members updated as the process advances over the next several months.