Many Americans are learning about health insurance for the first time, and others are adapting to changes. One area that seems to be ever-changing is "networks," as in doctors and hospitals "in network" and "out of network."
Insurance companies have routinely made changes in networks, but in recent years, insurers have increasingly restricted the number of hospitals and doctors they do business with to keep premiums lower. It's a business decision, and it's all about cost.
Provider-based costs are the single biggest contributor to premium prices. The better an insurance company manages those costs, the lower its premiums will be. And the lower the premiums, the more competitive it is in the marketplace.
Changes in networks can be unsettling for consumers, but the practice is old hat to most longtime insurance customers. According to many industry studies, lower premiums are generally more important to policyholders than a broad choice of hospitals or doctors.
Restricting provider networks to reduce costs is nothing new. For example, employer-based insurance plans with narrow provider networks increased from 15 percent of plans offered in 2007 to 23 percent in 2012. That trend is even more common in the individual insurance market. And the implementation of the Affordable Care Act has definitely accelerated the practice.
Prior to the ACA, insurers had many tools to reduce costs and keep premiums down, but they weren't always positive for consumers:
• Carriers could offer "limited benefit" plans that provided minimal coverage at lower prices. Many of these plans included lifetime or annual benefit caps that were designed to reduce an insurer's liability. Under these plans, coverage was often inadequate to meet a serious or chronic health need, and high out-of-pocket costs led to financial disaster for some policyholders.
• Individual-market insurers could also charge higher premiums based upon gender, age, claims history, occupation and many other rating factors. Coverage could also be denied or dropped because of a pre-existing condition or a change in health status.
Under the ACA, plans must now provide comprehensive coverage, including maternity, prescription drug and mental health benefits. Limited-benefit plans are no longer allowed and companies can no longer place annual or lifetime caps on benefits. Carriers can no longer charge higher premiums based on gender, health status, occupation or claims history.
Higher premiums can be charged only for age or tobacco usage, but there are new limits on how high those rates can be.
All of this made insurance companies look for other ways to reduce costs. And the most obvious way was to contain provider prices. Prices can vary wildly across different providers and hospitals. By designing the lowest-cost provider network, an insurance company can significantly lower its spending. This often means shrinking its existing provider network by removing higher-cost hospitals and doctors.
According to a recent study by the Robert Wood Johnson Foundation, one leading insurer in Colorado identified high-priced hospitals and removed them from its 2014 provider network. Physicians affiliated with those excluded hospitals also were removed, even though they had previously been in the insurance company's network. Other insurers stopped offering both PPO (preferred-provider organization) and HMO (health-maintenance organization) plans and instead switched to HMO-only networks.
One alternative that is being considered for Colorado in 2015 is "tiered" networks. In a tiered network, providers would be given a preferred or less-preferred tier assignment based upon how much they charged. While both tiers are in a carrier's network, policyholders would pay lower out-of-pocket costs for a doctor or hospital in the preferred tier.
On Colorado's Western Slope, Aetna Insurance has partnered with a number of hospitals and providers to create a new "Mountain Enhanced" plan. Policyholders would have to agree to be treated by the providers in the partnership instead of getting care from providers in Denver or Grand Junction. In essence, local hospitals and doctors would agree to charge lower rates in return for treating a larger volume of patients. This scheme is projected to lower premium rates by as much as 8 percent.
Clearly, narrower provider networks are here to stay, and this creates both problems and advantages. For some policyholders, keeping their current doctor may be more difficult, and choosing an out-of-network doctor or hospital would almost certainly lead to higher prices and out-of-pocket costs. That negatively affects consumer choice. On the other hand, patients who are less interested in provider choice may see lower premiums. And narrower networks may also end the pattern of insurance companies routinely reducing benefits and increasing out-of-pocket costs.
Ultimately, the focus on networks and relative costs has the potential to increase competition and drive down systemwide health care costs. Insurance companies have greater leverage to negotiate lower prices in order to keep price growth more manageable. And providers may have a greater incentive to keep prices lower to prevent themselves from being excluded. This is especially true in urban areas, where there is greater competition for patients. In rural areas, where provider competition can be limited, narrower networks will be much harder to create. For example, one insurer in Colorado intends to maintain its broad networks in rural parts of he state but more narrow networks in the Denver area.
Beyond limited consumer choice, the biggest negative may be network adequacy and quality. According to the Robert Wood Johnson study, "insurers generally did not report any efforts to design a network built on providers' performance, quality metrics or patient outcomes." Instead, the primary reason for including or excluding a provider was largely based on price.
Federal regulations require insurance companies that offer plans in the new insurance exchanges to maintain provider networks that offer a "sufficient" number of general practice and specialists that can be accessed by patients without an "unreasonable delay." However, the definition of "sufficient" and "unreasonable" is left up to carriers and state regulators.
In Colorado, thanks to a state law, if a policyholder does not have an accessible and available in-network provider who meets a specific need, he or she can see an out-of-network provider at no additional cost.
Cost versus choice has always been an issue in health care, and restrictions on provider networks are the latest example of that trade-off. Even though they can reduce costs, shrinking networks have the potential to negatively impact care quality and create financial harm for some consumers. Colorado has indicated that it will be reviewing its existing network adequacy standards for 2015. However, it isn't clear how those standards will change, if at all. Given the industry trend, it is more important than ever for federal and state regulators and policy-makers to review and improve the laws that oversee these networks.