Reflecting on Health Reform - Narrow Networks: Boon or Bane?
February 24, 2014 - The Commonwealth Fund
By David Blumenthal, M.D.
Some health plans sold through the Affordable Care Actfs (ACA) health
insurance marketplaces use "narrow networks" of providers: that is, they limit
the doctors and hospitals their customers can use. Go to Doctor A or Hospital A
and the plan will pay all or most of the bill. Go to Doctor B or Hospital B, and
you may have to pay all or most of the bill yourself.
The narrow network strategy emerged long before the ACA, during the managed
care era in the 1990s, and insurance companies and large, self-insured employers
have used narrow networks ever since to control health care costs. In
fact, for the first time, the ACA creates new consumer protections requiring
that insurers provide a minimum level of access to local providers. A number of
states have exceeded
these federal standards using their discretion under the new law.
Nevertheless, some consumer advocates and ACA critics still find narrow
networks objectionable. Narrow networks mean that some newly insured people are
no longer covered for visits to previous providers, or, if they didnft have a
doctor before, are limited in their new choices. Not infrequently, narrow
networks exclude the most expensive doctors and hospitals in a community,
including some specialists and academic health centers. More expensive doctors
and hospitals are not necessarily better, but for patients with a rare or
complex health problem, such restrictions can be problematic.
Welcome to the world of competition in health care, because that is what
narrow networks are about. Narrow networks are used by competing plans to
control health care costs, and perhaps improve quality as well. In fact, if you
donft like narrow networks, youfre saying, in effect, that you donft like
competitive solutions—as least under current market conditions—to our health
systemfs problems.
The competitive logic behind narrow networks goes like this. ACA marketplaces
require that qualified health plans with comparable actuarial value (at
platinum, gold, silver, and bronze levels) display their costs side by side in
online insurance marketplaces. This makes it easier than ever before to make
apples-to-apples comparisons among health plans, and creates unparalleled
pressures on insurance companies to keep their prices down so as to attract new
customers.
In the past, insurers often kept prices down by limiting benefits or
cherry-picking healthy customers. The ACA takes these options off the table. As
noted, within any of the four categories, health plans must offer roughly
comparable benefits. And the ACA prevents plans from excluding consumers with
preexisting conditions or increased health risks. The result is that to compete
on price, insurance companies must control the costs of the care their customers
use.
This is great in theory, but enormously difficult in practice, especially for
most private insurance plans. High prices charged by providers are a major
reason for high costs. Medicare and Medicaid use their regulatory authority to
set prices, and providers really canft object because these public programs have
such large market shares that many doctors and hospitals canft get along without
them. But individual private insurers lack the market power in most communities
to negotiate better prices, and banding together to increase their clout would
violate antitrust laws.
Narrow networks are a partial solution to private insurance companiesf
dilemma. Plans contract selectively with doctors and hospitals who charge lower
prices or have a track record of treating episodes of illness less expensively.
Narrow networks also give private insurers more market clout. By guaranteeing
their chosen caregivers a certain volume of business, health plans acquire the
leverage to negotiate better prices in future contracts.
Some plans also use quality metrics to ensure that less-costly providers have
comparable or better quality. Thus, the quality of care in narrow networks may
be equal to or better than the care patients receive in unrestricted plans.
If the narrow network approach sounds familiar, it should. This is what
virtually every company in every other industry does every day to the acclaim of
its customers, Wall Street, and many critics of narrow networks. Picking
low-cost suppliers that meet quality standards is the key to business success
the world over.
The controversy around narrow networks throws into bold relief a much broader
debate about the roles of competitive and noncompetitive solutions to our
nationfs health care problems. Most other countries in the developed world
control health care costs and prices the way Medicare does. Government, or an
agent of government, negotiates provider reimbursements that meet national cost
goals. Consumers then have pretty much unrestricted choice of provider.
In the U.S., such centralized regulatory solutions are anathema, except in
the case of Medicare. But so, it seems, is the pain that private competition
inflicts on patients, who, to great public consternation, find they canft use
the doctor or hospital they want.
Government may respond to the narrow network controversy by further
regulating private insurersf contracting practices. Whether this will succeed in
providing more relief to consumers, while controlling costs, remains to be
seen.
But one thing is clear. Competition in health care sounds like a good idea.
But when its effects surface, the public reacts as if health care is a right,
not just another one of those gas grills or wide-screen TVs that line those long
aisles at your local retailer.