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Narrow-Network Health Plans Expected to Proliferate Under Obamacare Narrow-Network Health Plans Expected to Proliferate Under Obamacare

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Innovations in Health

Narrow-Network Health Plans Expected to Proliferate Under Obamacare

Emlyn Louis, MD speaks with Julia Herrera as he examines her at the Broward Community Family Health Center on April 20, 2009 in Pompano Beach, Florida.(Joe Raedle/Getty Images)

October 9, 2013

The health care industry has revived a variation on a widely derided product and proclaimed it a fresh, urgently needed innovation.

The old idea was managed care during the 1990s, which involved restricting the number of physicians a patient could visit in order to give insurers greater bargaining power over provider and plan rates. The plans were ultimately abandoned; patients felt they had too few options and let their insurers know about it. But the general concept has been revived. Some insurers are simply narrowing networks and leaving it at that. Others are attempting to narrow networks and direct patients to the best physicians, generally by having their services cost less. The networks will proliferate due to the health care law's emphasis on cost savings and will be especially prevalent in Obamacare's exchanges, the insurance marketplaces that opened Oct. 1.

Early data suggest such narrow-network and "tiered" plans will be widely available on the exchanges; the one insurer on the New Hampshire exchange, for example, will offer care at only 16 of the state's 26 hospitals. Modern Healthcare reported in August that nearly half of the plans offered on 13 state exchanges will have narrow networks. An executive from Moody's quoted in the article estimates that these exchange insurance plans will pay providers close to Medicare rates. That's cheaper than most of the private market.

 

Despite their lower price tag, critics worry that tighter-network plans may prevent patients from getting adequate care. A California hospital executive told the Los Angeles Times on Sept. 15, "We are nervous about these narrow networks. It was all about price. But at what cost in terms of quality and access? Is this contrary to the purpose of the Affordable Care Act?" There are echoes in the insurance community; in 2010, insurer Harvard Pilgrim introduced an exceptionally tight network, which its CEO Eric Schultz described as "a blunt instrument," reducing access solely for cost reasons.

Boston University health economist Austin Frakt writes,"[C]onsumers will not like it, in general. In exchange for significantly lower premiums, maybe enough will." Others stress that having access to some care through the cheap plans is better than nothing; Jeffrey Flier, dean of Harvard Medical School, tweeted that the narrow networks that will be offered on California's exchange represent "trade-offs" between price and options.

One state is already encouraging the use of narrow networks, providing a preview of how consumers may respond. Massachusetts passed a law in 2010 requiring health plans to offer tiered- or limited-network products priced 12 percent below their broad network product. A 2013 report from the state's attorney general noted that membership in tiered networks more than doubled between 2008 and 2012, and limited networks grew almost 50 percent.

"Prior to the wider introduction of tiered- and limited-network products … consumers had little to no incentive to switch to more efficient providers because they were not rewarded with the cost savings associated with that switch," the report says. Tiered and limited networks try to remedy that by shifting patient traffic to the better providers, which are determined by insurers. Physicians are likely to resist attempts to be categorized in terms of quality; for example, the AMA had a section of its website devoted to helping physicians understand and challenge tiering attempts.

But how well does it work? At the moment, many patients enrolled may not grasp the full implications of their tiered plans. Drawing on a 2010 survey, Anna Sinaiko of the National Institute for Health Care Management found that just under half of enrollees were aware they were in a tiered plan, and only 19 percent knew the tier designation of one or more of his or her physicians.

For those patients who are aware of the tiering, evidence of the plans' ability to drive patients to certain providers is mixed. An October 2008 study in Health Services Research compared the responses of two unions to a change in tiering incentives (and one unaffected control group). The engineers' union was nearly three times more likely than the control to go to hospitals with better safety records. The machinists' union was no more likely than the control group. The study suggests that the better education of the engineers' union may account for the difference, meaning that tiered plans' success may rest on sufficient education and time.

Sinaiko's report suggests that creating a large cost difference might be a more surefire way to encourage patients to visit preferred hospitals—one on the order of approximately $400. She argues that the cost differentials between tiers are too small (between $10 and $25) to influence behavior in many plans. This is a factor insurers may have to consider in designing their plans.

These experiences suggest some of the challenges for narrow-network and tiered plans going forward. California has already courted press controversy with the exclusion of certain tony hospitals from many of its exchange plans, like Cedars-Sinai Medical Center in Los Angeles, though it's unclear how patients will react. Consumer groups in Missouri have protested similar exclusions in network-offered plans in their state.

As with a lot of health care reforms, then, significant uncertainty reigns. It will take good design, good education, and time to properly implement narrow and tiered plans if they're to be successful at all.

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