Alternative health plans: Why quality is the real lever on cost 

Employers across the country are struggling to address their medical plan cost increases for 2027. Continuing to offer the same PPO and HDHP plan options while hoping for a different outcome is not the most promising cost-management strategy. In considering whether these familiar plans are providing value, the important question is whether they are doing enough to change how members choose care. The most important differentiator between plans is their ability to guide members to quality providers. To make better decisions, members need to know which providers deliver better outcomes, better experience, and better value.

Quality is what makes alternative plans different

Alternative health plans deliver value when they connect quality information to member choice at the moment care is needed. That is the innovative — and potentially disruptive — part of the model: unlocking the relationship between cost and quality for plan members when they are making decisions about care. When quality is visible, lower-cost choices are more likely to be the right choices, not just the cheaper ones.

This concept runs counter to how most goods and services are consumed. In general, higher quality comes at a higher cost, so consumers are naturally inclined to assume the most expensive option is the best one. That tendency is even more pronounced when the service in question is healthcare. While people may be willing to weigh cost and quality trade-offs in many areas of life, most are far less likely to compromise when it comes to their medical care.

How alternative health plans steer members to better care

The goal of these alternative health plans is to create financial incentives that steer members toward the highest-quality, most efficient providers — which will also, in the long run, be the lowest cost. These plans take many forms, including:

• Plans with a narrow network that excludes the lowest-quality providers
• Tiered plan designs with lower deductibles, copays, coinsurance, and/or out-of-pocket maximums for higher-quality providers
• Quality “overlays,” where members use a third-party vendor to identify high-quality providers within the broader network and receive HRA or HSA funding when they select one of those providers
• PCP-centric plans with no-cost physician visits, where primary care physicians help direct members to other high-quality providers and guide decision-making

Many employers still approach these models with understandable skepticism. Our related post, Four myths about alternative health plans employers should leave behind, explores several of the most common misconceptions and why they deserve a closer look.

By lowering the member’s cost share, these plans inherently increase actuarial value. While that means employers take on a larger share of the cost, total claims should decline if members are steered toward higher-quality care. The result is lower overall plan cost, even as members pay less out of pocket.

What employers should evaluate before choosing a plan

These concepts are not especially difficult to understand, but they can run counter to how we have been conditioned to think about plan design and healthcare consumption. With that in mind, employers should consider the following when selecting the right alternative health plan for their workforce:

• Member experience. Can members easily find the high-quality providers they need, with transparent pricing?
• BUCA vs. boutique. Some populations may be less willing to move away from a “brand name” national carrier, which can limit the types of alternative health plans that will gain traction.
• Slice vs. full replacement. To minimize employee disruption, employers may choose to layer an alternative health plan alongside more traditional options.
• HR team capacity. Implementing these plans brings additional administrative burden and requires extra employee communications.
• Geographic footprint and access to quality providers. Some solutions are available only in select markets, and rural areas may not have enough provider density to make quality steerage effective.
• Steerage strategy. Not all vendors define quality the same way or rely on the same data, so it is important to understand how providers are selected; some carriers may also offer narrow networks where steerage is driven more by discounts than by quality metrics.
• Proven savings. Third-party validation of vendor savings expectations should be required.

Employers that embrace these alternative health plans can help drive broader provider quality improvement. As members enroll, higher-quality providers will be rewarded with more utilization, while office visits and admissions shift away from lower-quality providers. Over time, as providers see themselves omitted from networks, not given a quality designation, or bypassed for referrals, they will have stronger incentives to improve their quality metrics.

In other words, the path to better cost performance runs through quality. Employers looking for a meaningful change should focus less on more of the same plan options and more on designs that steer members toward higher-value care.