Narrow networks: Get used to it

July 28, 2014
Narrow but workable
Narrow but workable

Many health plans unveiled “narrow network” plans recently as part of the Affordable Care Act. These plans cover a limited number of doctors, hospitals and other providers and often pay nothing for out-of-network coverage. Predictably, some members are upset as documented today by Kaiser Health News (Limitations of New Health Plans Rankle Some Enrollees.)  Some consumers are upset that they can’t see specific doctors who they may have seen in the past and that the list of available providers isn’t terribly long.

Insurance commissioners and lawmakers are hearing complaints and some are considering taking action. And while it definitely makes sense for regulators to take an interest in network adequacy and to prevent abuses, in my view narrow networks have become a crucial part of healthcare affordability and need to be maintained.

Here’s why they’ve become prevalent: The Affordable Care Act prevents health plans from using many of their traditional tools for limiting costs. They can’t reject sick or high-risk patients, can’t charge them more, can’t cap annual or lifetime benefits, and have to provide a set of proscribed services. At the same time, the plans are subjected to apples-to-apples comparisons on health insurance exchanges by price-sensitive buyers. The result is that plans take the main remaining step they can to be control costs: limiting their networks to providers willing to accept lower reimbursement rates.

Most shoppers care mainly about price so this is a very sensible approach for the health plans. And for many customers it’s a way to afford insurance that provides a wide array of benefits. In some markets (including Massachusetts) narrow network products that exclude the highest priced, largest healthcare systems provide very substantial discounts while still delivering high quality providers.

Narrow networks are becoming increasingly important. In 2010, before the Affordable Care Act, I wrote Narrow networks. Nice idea but no panacea. I listed six reasons why such networks were having a limited impact. Some of these factors are still present, but others are less prominent. For example, the development of integrated delivery networks mean that health plans can contract with these larger entities and get essentially all the providers they need, the emergence of risk-sharing through ACOs and similar arrangements aligns incentives, and in general there is more price sensitivity. At least a few provider organizations are now positioning themselves as value players, ready to address an emerging market segment.


photo credit: coolmonfrere via photopin cc

By healthcare business consultant David E. Williams of the Health Business Group

2 thoughts on “Narrow networks: Get used to it”

  1. There is nothing in the ACA that requires “narrow networks”. Insurance companies are finding ways to improve profits other than excluding people for pre-existing conditions or cancelling insurance to stop losses. I am glad they lost those ways to make profit. Now insurance companies are trying to exclude physicians that cost them more. The physician’s pen is responsible for a large segment of health care cost. This strategy may help some but as Medicare statistics show: a given physician is not consistent — some diagnoses they might be conservative other diagnoses they might be profit-motivated. The “narrow network” has little to do with quality — many studies show cost of care and quality of care are not linked. Narrow networks will have one sure effect: longer waiting times. If you include waiting times as part of health care quality then this insurance tactic will degrade quality. Counting on insurance companies to maintain quality is a mistake which will require regulatory action.

  2. Good points. There is an interesting assumption in the ACA that insurance companies should be the ones to contain costs. There are other possible choices, such as having the government set prices or enabling providers to compete on price more directly. Maybe those would be better, but it was certainly easier politically to let the health plans do the dirty work.

    The first generation narrow network plans may be fairly crude, but people still want to save money and narrow networks are a way to do it. Expect better, narrow networks to emerge that improve quality while holding down total medical expenses, e.g., by keeping patients from having to go to the hospital.

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