As intended, the consumer demand created by the Affordable Care Act is expanding the insurance marketplace, as reported in Inside Health Insurance Exchanges and reprinted in Health Business Daily (free registration required) on June 24, 2014. Some examples of new entrants include:
- Co-ops in states where Blue Cross Blue Shield plans dominate, like Kentucky Health Cooperative in West Virginia and Montana Health Co-op in Idaho
- Local plan expansions from nearby states like Harvard Pilgrim and Minuteman Health in Massachusetts moving into New Hampshire
- Health system-based networks in densely populated areas like North Shore-Long Island Jewish Hospital and Health System in New York
With more plans to choose from that offer the same mandated benefits and guaranteed issue requirements, the provider network is a key decision point for consumers and employers. “Many carriers’ rates ‘look good on paper, but when you pull back the layers,’ consumers are wary. In the end, ‘it really comes down to the network,’ since consumers don’t want to give up existing providers when they switch insurers,” said Kyle Kautzman, GBA, an insurance broker with EBNY Insurance Services, Inc., in a Health Plan Week article reprinted in Health Business Daily on May 12, 2014 (N.Y. Small-Group Market Isn’t Suiting United’s State of Mind (with Table: Top 10 Health Plans in New York's Commercial Risk Market). Mr. Kautzman was commenting on the New York State small-group market but the observation applies to any area in the US.
Employer groups and consumers are grappling with the term “narrow networks.” What are they really? McKinsey & Co. define narrow networks as “having at least 30 percent of the 20 largest hospitals in a geographic area not participating in the exchange’s silver plan.” Perhaps a simpler way of looking at it is typical narrow networks include providers who agree to lower prices with the expectation that patient volume will grow. Insurers then pass some of the savings on to consumers. Starting to sound similar to an HMO, right? Carriers have been using network size to reduce rates for quite some time; the ACA rules simply accelerated the trend.
Narrow networks seem to be most successful in areas where providers are plentiful so that carriers can choose providers with lower rates and better outcomes. For example, Health Net is seeing success in California. They offer narrow, or tailored, networks in five southern California counties and use their existing PPO network everywhere else. According to Health Net spokesperson Brad Kiefler, in an AIS’s Health Reform Week article reprinted in Health Business Daily on May 5, 2014, entitled Calif. MD Supply Concerns May Boost Networks, Reimbursements, enrollment in tailored networks is 38% of the commercial total enrollment reflecting demand from employer groups as well as consumers from Covered California, the state exchange.
Kiefler went on to say, “So in Southern California, where there is significantly more competition among providers – there are 80 hospitals in LA County – insurers have been able to create these narrow networks and demand relatively lower reimbursements from providers. In the parts of the state that are dominated by a particular provider system, the rates are consequently higher.” In densely populated places with many providers, like Los Angeles, market forces drive costs and rates down so even though networks are narrow by choice, consumers still see reduced costs. In sparsely populated areas with fewer providers, like central California, networks are naturally narrow and competition doesn’t exert pressure on costs or rates.
What do narrow networks mean for you and your customers? How will you monitor changes in the network landscape on the exchanges and off?