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. Mr. Louis's job was saved when the American Recovery and Reinvestment Act provided funds for community health centers. The Broward Community & Family Health Centers received nearly $1.5 million in Recovery Act funds, allowing them to halt layoffs and instead hire 13 additional employees. In total, the funds will provide services for an additional 6,600 underserved South Floridians while saving or creating 15 local jobs.
National Journal
Darius Tahir
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Darius Tahir
Oct. 9, 2013, 5:15 a.m.

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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