Narrow Networks: A Perhaps Overlooked Model for Savings and Quality
“If you like your doctor, you can keep your doctor.” President Obama made this controversial and widely quoted statement about a decade ago while he was promoting the Affordable Care Act (ACA) before its enactment.
The quote recognizes that most people prefer to choose their own physicians. But health care market dynamics, even before passage of the ACA, were already driving employers to incentivize employees to choose providers that satisfied “preferred provider” criteria — even if doing so meant they’d have to drop their old doctors. The ACA and subsequent market pressures encouraged many employers and health care plans to move further in this direction.
Concern about employees’ reaction to such changes remains a potent factor in health plan design decisions today. One way to perhaps mitigate these fears is the “narrow network” model. But there exists an apparent disconnect between the prospect of lower costs from this strategy and the slow (thus far) uptake of the model among private sector group health plan sponsors.
Where to find them
Narrow networks, according to the Employee Benefit Research Institute (EBRI), “are characterized by offering considerably fewer health providers than is typical in the group market and which providers are included primarily based on price discounting.”
Health care plans offering narrow networks stress that quality of care isn’t sacrificed on the altar of cost savings. In fact, quality metrics are generally in the mix of criteria in provider selection.
Also, narrow-network plans can focus on cutting deals with accountable care organizations. This involves provider groups structured to maximize coordination of care by accepting a fixed comprehensive fee for each medical diagnosis, regardless of the number of providers called upon to deliver care and the number of doctor visits needed to treat the episode.
Narrow networks today are prevalent in Health Insurance Marketplaces (commonly referred to as “exchanges”), as well as in Medicare Advantage plans (more than a third of them, by one count). But the networks are uncommon among private employers. According to the Kaiser Family Foundation’s (KFF’s) 2018 Health Benefits Survey, 7 percent of small employers and 5 percent of large employers that sponsor health care plans offer narrow-network options.
HMOs and HDHPs
The low percentages among private employers, however, may understate the prevalence of narrow networks. Many HMOs — particularly “closed panel” and “staff model” HMOs — can be characterized as narrow networks. Nearly one-third (31 percent) of employers covered in the same KFF survey offer an HMO choice. Curiously, the prevalence is higher (35 percent) among employers with only three to 24 workers.
Looking at enrollment numbers, the 2018 KFF survey found that 16 percent of employees had signed up for HMO coverage, a slight uptick from the 14 percent rate found in 2013. An earlier EBRI study, Narrow Provider Networks for Employer Plans, concluded that, though narrow-network plans hadn’t caught fire with private sector employers, “there are signs that employers’ interest in narrow networks may grow in the near future.”
Reasons offered for the sluggish initial acceptance of narrow networks among employers include:
- Absence of a track record showing sustained savings,
- Concerns over antagonizing workers,
- Spotty availability of narrow networks, particularly in rural areas, and
- Stronger interest in other cost-saving strategies.
The fastest-growing alternative cost-saving strategy — high-deductible health plans (HDHPs) with Health Savings Accounts — saw aggregate employee enrollment jump from 20 percent in 2013 to 29 percent last year, according to the KFF survey. But a closer look at HDHP offerings suggests such plans aren’t viewed confidently as an ideal solution. For example, a 2018 survey by Benefitfocus found that relatively few large employers (5 percent in 2018) offer HDHPs exclusively.
“Full replacement offerings have essentially remained flat since 2016,” according to the report. One possible reason is that HDHPs appear to be less attractive to employees with lower incomes, presumably because they fear having to pay large sums out of pocket until their benefit coverage kicks in. This fear apparently outweighs the benefit of lower co-insurance costs. In that same KFF survey, the average salary of employees who elected an HDHP option was $4,700 higher than that of other employees.
Evidence of cost savings
Can narrow networks drive down plan costs? While the jury may be out with private employer plans, a different KFF study from 2017 reached some dramatic conclusions regarding the Medicare Advantage plan market. Namely, it suggests the answer may be “yes.”
“Broad-based plans tended to have higher average premiums than narrow-network plans,” according to the report. Specifically, the average monthly premium for Medicare Advantage plan beneficiaries using broad networks within the HMO model plan was $54, vs. $4 for narrow-network HMOs. For PPO model plans, the averages were $100 (broad) vs. $28 (narrow).
If your organization offers only one type of health care plan, motivating employees to choose it is obviously a nonissue — unless, of course, they elect to drop coverage entirely. If instead you offer multiple plans and want to encourage employees to take advantage of a narrow-network plan, EBRI’s study has a suggestion: “Where narrow networks are offered, their adoption could be increased by giving workers stronger financial incentives to consider them. Offering workers a fixed contribution that does not vary by choice of plan is one way to confer such incentives.”
As the year rolls along and you start considering health plan model changes for 2020, don’t overlook the potential feasibility of a narrow-network plan. Even if you need to offer an incentive as suggested, the overall cost savings could pay off in the end. Work with your team of benefits advisors to find out for sure.