The Challenge
A regional employer with 325 employees was transitioning to self-funded health insurance. With tight margins and high employee turnover typical in the industry, controlling healthcare costs from day one was critical.
Leadership needed a strategy that would deliver immediate savings without waiting to see how claims developed throughout the year.
The Solution: 2-Tier Network Architecture
Memberly designed a dual-network strategy that combined aggressive cost control with comprehensive employee access:
Network Structure
Tier 1: Direct Hospital System Contract
Direct agreement with a regional health system covering hospitals, outpatient facilities, and specialists—bypassing traditional PPO markups.
Tier 2: National PPO Network
Broad geographic coverage for services outside the Tier 1 system, ensuring employees maintained access wherever they lived or traveled.
How It Works
The 2-tier model creates a sophisticated claims routing system:
- Claim Identification – TPA determines if provider is in Tier 1 network
- Direct Repricing – Tier 1 claims repriced using contracted rates (typically 10-30% below PPO)
- Adjudication – TPA applies deductibles, copays, and out-of-pocket maximums
- Payment Processing – EOB issued and provider paid at contracted rate
Employee Incentive Design
To drive Tier 1 utilization, the plan included financial incentives:
✓ Lower deductibles for Tier 1 facility care
✓ Reduced out-of-pocket maximums when using Tier 1 providers
✓ $0 copays for office visits and procedures at Tier 1 locations
Result: Employees save money by choosing Tier 1, while the plan benefits from lower contracted rates.
The Savings: $430,000 Before Day One
Implementation Process
Step 1: Stop-Loss Sourcing
Memberly secured competitive specific and aggregate stop-loss coverage for the 325-employee group.
Step 2: Tier 1 Contract Negotiation
After initial quoting, Memberly added a direct contract with a high-quality regional health system.
Step 3: Aggregate Factor Recalculation
The stop-loss carrier recalculated the group’s aggregate factors using the lower Tier 1 fee schedule instead of inflated PPO rates.
Financial Impact
| Metric | Before Tier 1 | After Tier 1 | Savings |
| Annual Aggregate Attachment | $2,080,000 | $1,650,000 | $430,000 |
| Aggregate Reduction | — | — | 21% |
| Overall Premium Impact | — | — | 13% reduction |
The Game-Changer
This $430,000 savings occurred before the plan year even started—regardless of whether employees used Tier 1 services. The savings came from:
- Lower projected claims cost due to superior contracted rates
- Reduced stop-loss premiums based on improved aggregate factors
- Decreased monthly claims funding requirements
Why This Matters for Employers
The employers faces unique benefits challenges:
High Turnover – Need cost-effective coverage that delivers value quickly
Distributed Workforce – Employees work at various client sites, requiring flexible access
Margin Pressure – Healthcare costs directly impact competitiveness and profitability
A 2-tier network addresses all three:
- Immediate savings improve cash flow regardless of turnover
- Tier 2 PPO maintains broad geographic coverage
- Lower costs strengthen competitive positioning for new contracts
ROI Analysis: Access Fee vs. Savings
While implementing a 2-tier network includes a TPA access fee for the direct contract infrastructure, the return is substantial:
Costs
- Access fee to TPA for repricing infrastructure and claim routing technology
Benefits
- 10-30% lower unit costs compared to standard PPO rates
- Improved stop-loss terms with reduced aggregate factors and monthly funding targets
- Compounding savings as employees utilize Tier 1 providers throughout the year
- Enhanced recruitment through better plan design with lower member costs
Bottom Line: The $430,000 first-year savings far exceeded the access fee investment, with ongoing savings accumulating as Tier 1 utilization increased.
Operational Considerations
Success with a 2-tier network requires:
Systems Integration – Seamless connectivity between TPA, repricing partner, and hospital system for accurate claim routing
Employee Communication – Clear messaging about Tier 1 benefits and how to access preferred providers
Network Adequacy – Strategic selection of Tier 1 partner based on employee demographics and utilization patterns
Performance Monitoring – Regular tracking of Tier 1 adoption rates and savings realization
Memberly’s Advantage: We handle the entire implementation, from contract negotiation to employee education, ensuring seamless execution.
Beyond Year One: Compounding Value
While the immediate $430,000 savings was impressive, the long-term value continues to build:
- Claims savings accumulate as employees choose Tier 1 for procedures, imaging, surgeries, and specialty care
- Predictable costs from locked-in contract rates protect against provider rate inflation
- Employee satisfaction increases as lower out-of-pocket costs are realized
- Renewal leverage improves with demonstrated claims management and network steering
Is a 2-Tier Network Right for Your Organization?
This strategy works best for employers who:
✓ Have geographic concentration where a regional health system serves most employees
✓ Are implementing or currently on a self-funded plan
✓ Want to reduce costs immediately, not just hope for future savings
✓ Value high-quality care alongside aggressive cost management
Memberly’s 2-Tier Network Implementation
We handle every aspect:
Stop-Loss Optimization – Source competitive coverage with carrier relationships
Direct Contract Negotiation – Secure favorable rates with regional health systems
Network Design – Structure Tier 1/Tier 2 incentives for maximum engagement
Claims Administration – Seamless repricing and adjudication through integrated TPA systems
Employee Support – Communication materials, provider directories, and ongoing assistance
Ready to save before your plan year starts?
📍 www.memberlybenefits.com
📞 Dom Maggiore
(631) 905-6555
dom.maggiore@memberlybenefits.com
