Chattanooga, Tenn., has higher than average rates of obesity, smoking, and hypertension, yet on the Obamacare exchanges, the county has surprisingly low insurance rates. Relatively low, at least: One resident explained to The Atlantic that he’s paying only $187 a month for a silver plan, and others’ premiums were cut in half from what they were before the law. How?
Perhaps partly because the area’s health problems were going to push rates way up when the ACA was implemented, insurers in Chattanooga have designed plans that cover extremely limited networks of doctors and hospitals.
The practice of “narrow network” plans has become more common across the country since the ACA went into effect because new regulations leave limited options for cost containment. Before the ACA, insurers could reduce benefits, adjust risk pools, or increase rates to remain profitable. Now, narrowing networks is one of the few tools insurers have left to control costs. This may be why 70 percent of the silver plans offered on the Obamacare exchanges, on which individuals purchase insurance, are narrow-network plans, when a much smaller proportion of employer-provided plans have narrower networks.
But narrow networks have low premiums for a reason: They limit choice. Having limited options can be frustrating, especially if a doctor or hospital you like doesn’t end up in your network. However, evidence suggests that individuals who are currently uninsured and low-income individuals — the people most careful about pricing of insurance – say they’d rather have fewer choices and lower rates than pay more for a broader network.
Plenty of people have criticized Obamacare for causing the proliferation of narrow networks, but those who want more choices will still have the option to purchase broad-network plans. On the Obamacare exchanges, they report, McKinsey & Company explains:
Broad networks are available to close to 90 percent of the addressable population [while] narrowed networks are available to 92 percent of that population; they make up about half (48 percent) of all exchange networks across the U.S. and 60 percent of the networks in the largest city in each state.
But, with premiums having increased so dramatically under Obamacare, many people feel forced into narrower networks to avoid ruinous premium increases. The (relative) savings can be substantial, according to McKinsey:
Compared to plans with narrowed networks, products with broad networks have a median increase in premiums of 14 to 17 percent. . . . Across the country, close to 70 percent of the lowest price products are built around narrow, ultra narrow, or tiered networks.
Narrow networks limit choice, but don’t necessarily compromise access to care: The ACA lays out Qualified Health Plans (QHP) standards, which require plans to have a network large enough to deliver all services without excessive wait times and within a reasonable distance of the patient. Some states also have specific laws about minimum networks that regulate patient-to-provider ratios, waiting periods, and travel times.
When consumers pay less for their care, are they getting a lower-quality product? Not necessarily. McKinsey compared broad and narrow networks using Centers for Medicare Services hospital metrics and found that both types of plans performed equally well in terms out outcomes and patient satisfaction. This might seem surprising on its face, since narrow-network plans basically reduce costs by contracting with only the least expensive providers and excluding more-expensive ones. But there is little evidence to show a positive correlation between high-cost medical services and quality, so having an insurer discriminate based on price won’t necessarily reduce quality.
In some cases, narrow networks can even provide better quality care. They may cover just one hospital system, so patients will receive all of their care within that system. This could improve outcomes by making medical records more accessible between doctors, increasing the likelihood that patients see the same physicians continuously, and reducing the amount of duplicative care and unnecessary procedures. (There are also signs of a similar effect within Medicare Advantage enrollees, who may fare better than regular Medicare because their care is constrained to a smaller network.)
If these types of networks become more prevalent — and it looks like they might — it’s likely that state will become more active in regulating narrow networks, as consumers seek lower prices but worry about access. Already, both California and New York have passed laws to limit the amount patients can be charged for using out-of-network hospitals.
Narrowing networks to decrease costs isn’t too popular among the majority of Americans (recall the outrage over one insurance executive telling the New York Times that consumers should learn to break their “choice habit”). But any measure that controls health costs without compromising access or quality could be a move in the right direction. Narrow networks remain one of the insurance market’s few remaining cost-control mechanisms — we’ll see how long regulators let them last.