Will Narrow Networks Save Us? – Commentary by Aaron Katz

Apparently, the Affordable Care Act has allowed health insurers to do what they have long failed to get done – create products with narrow networks of “high-performing, low-cost” hospitals and doctors.

This is not a new idea.

Insurers in many markets around the country attempted to “incentivize” providers to lower their prices by offering contracts to some, but not all.  In return, the lucky few(er) would see their patient base – and thus revenue – expand.

One infamous attempt was by Regence BlueShield, which offered contracts to a subset of physicians in King County based on its internal data on cost and clinical performance.  The year was 1992.  The swift and public backlash, according to some accounts, gave momentum for passage of comprehensive reform legislation, the Washington Health Services Act, in early 1993 by undermining the insurance industry’s opposition to the law.  (The respite was short, as insurers helped to repeal the law two years later.)

The Center for Studying Health System Change’s Community Tracking Study reported on narrow or tiered networks as long ago as 2003 and in several reports thereafter.  By and large, the picture was one of strong interest by insurers and purchasers as a strategy to reduce cost increases and strong opposition by providers and consumers; the former saw threats to autonomy and revenue, the latter to choice.  The resistance mostly won out.

But in the ACA world, it appears that products with narrow provider networks are common, if not dominating the new insurance exchanges.  According to Paul Mango, a director at McKinsey & Co., two-thirds of hospital networks available to exchange enrollees are “narrow or ultra-narrow.”  And if hospital networks are narrow, then it’s likely physician options are as well, since hospitals have been buying up those practices left and right (see Amy Goodnough’s NYT article).

How will narrow provider networks fare this time around?  On Feb. 26, Kaiser Health News published a capsule story entitled “Poll: For the Right Price, Consumers Will Accept Limited Choice of Doctors, Hospitals.”  Sounds like good news for the strategy … until you read down the story a bit.  It turns out that those polled (which included only people who buy their own coverage) would choose a narrow-networked plan if it had a lower premium unless that narrow network doesn’t include their usual doctor or hospital!  In that case, narrow-network choosers drop from 54% to 35%.

OK, but the poll did offer more good news for this strategy.  Narrow networks were favored by younger and poorer people, groups that are overrepresented among the millions now seeking and obtaining coverage for the first time.

So, with the influx of people not wedded to the “old” notion of comprehensiveness in insurance, perhaps the ACA’s coverage expansions, subsidies and new marketplaces will give limited provider networks a new lease on life.