Network Design Strategies Offer Savings to Consumers but at a Price: Limited Choice

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With the proliferation of narrow network plans on the new exchanges and more broadly in Medicare Advantage and commercial plans, consumers are being steered to health care coverage that offers lower prices, through reduced premiums, but limited choice. Anecdotal evidence to date suggests that the exchange networks are narrower than consumers anticipated, which may leave them vulnerable to the financial burden of out-of-network care for services not adequately covered within network. As reported by the New York Times, the Obama administration is developing more comprehensive network adequacy standards for private plans sold on the exchanges, and the National Association of Insurance Commissioners is updating its 18-year-old model law to enhance consumer protections.

The Affordable Care Act (ACA) creates the first national standard for network adequacy in commercial health insurance sold on the exchanges, and pre-dating the ACA at least 20 states had network requirements for commercial plans—including standards for geographic access, appointment waiting times, provider/patient ratios, accreditation and certain exceptions for out-of-network cost-sharing—and Medicare sets maximum travel time and distance criteria. Yet, incomplete information on the exchanges and outdated provider directories challenge consumers’ ability to make an informed choice between plan cost and network breadth. Confusion about which providers are included in a plan’s network is evident among consumers and doctor’s office staff. While consumers may prefer the lower premiums characteristic of narrow network plans, without comprehensive, clear, and accurate information about a plan’s network, they may find themselves “under-insured.” 

In addition to narrow networks, health insurers employ other benefit and network design strategies to control plan costs while enhancing value. In a HCFO-funded study, Meredith Rosenthal, Ph.D. and Anna Sinaiko, Ph.D., Harvard School of Public Health, examined a related network design strategy—tiered physician networks—and the effects of tiering on patient choice of physician or health plan. Tiered networks sort providers into levels based on cost and quality performance, and patients are incentivized through differential co-payments to select a physician in a higher-performing tier. The Massachusetts Group Insurance Commission implemented one of the first large employer tiered physician networks in all of its non-Medicare health plans offered to 375,000 public employees, retirees, and their dependents. Sinaiko and Rosenthal found evidence of significant physician loyalty. While tiering was effective in steering new patients toward higher quality physicians, tiered networks had no effect on patients switching away from physicians whom they had seen previously. As with choice of new physicians, very few patients switched plans year-to-year; however, the few patients that did switch plans were more likely to have seen a physician in the worst-performing tier. The researchers note that this plan switching, though limited, may reflect either dissatisfaction with the care received or dissatisfaction with the plan experience after the introduction of tiered networks. As tiering and the narrowing of provider networks continue to proliferate, consumer education and communication will become increasingly important, particularly around provider quality and network adequacy.

Additional information about Dr. Rosenthal’s and Dr. Sinaiko’s study is available here.