Less choice, lower premiums

Many of the health plans that will be sold on the new state insurance exchanges in January will offer substantially smaller networks of hospitals and physicians than current health plans generally offer.

Nearly half the exchange plans in 13 states with early filings will be of the narrow-network type, according to an unpublished McKinsey & Co. analysis of 955 plan offerings. Enrollees in such plans will have limited or no coverage if they seek care outside their plan network. In exchange, subscribers will enjoy lower premiums than they would pay for plans with broader networks, insurers say.

Insurers believe millions of exchange subscribers of modest incomes will accept that tradeoff. That would be a big change from the 1990s, when Americans largely rejected HMO-driven restrictions on provider choice and access. Up until recently, only a small fraction of people in employer-based and individual plans have been enrolled in HMOs.

Insurers including Aetna and Health Net say narrower networks, made up of hospitals and physicians selected using cost and patient-outcomes criteria, are necessary to keep their exchange plan premiums affordable while still meeting the requirements of the Patient Protection and Affordable Care Act. They increasingly have offered such plans to employer groups over the past few years, touting annual cost savings of 10% to 25%. In the large-employer market, Aetna's narrow panels are 15% to 35% smaller than its standard preferred provider panels. Blue Cross and Blue Shield of Illinois says its exchange plans using narrow networks will cost 20% to 30% less than its exchange plans with bigger networks.

Insurers say they are able to charge lower premiums for narrow-network plans because they can select more cost-effective providers, and in some cases they are able to pay them lower reimbursement rates in exchange for funneling more patients to them.

But some physician groups, hospitals and patient advocates say they are concerned that many of the insurers' networks have not yet been publicly announced less than two months before open enrollment begins Oct. 1. They fear that patients, particularly those who need specialized providers, may not have adequate access to care. Last year, the Obama administration issued a rule that insurers “must maintain a network of a sufficient number and type of providers … to assure that all services will be available without unreasonable delay.” It also required that “essential community providers” be included in all plans.

Dr. Reid Blackwelder, president-elect of the American Academy of Family Physicians, said that family physicians need to work in tandem with specialist physicians whose work they know and trust and that health plans whose provider networks are too small could make it more difficult to do that.

Bill Barcellona, vice president of government affairs for the California Association of Physicians Groups, which represents physicians working in managed care, said his group has tried to get the network filings from the state, “but we haven't got our hands on anything.” He called the adequacy of the insurers' exchange plan networks “a big issue.” Member physicians also haven't been able to find out what rates the exchange plans will be paying.

Several insurers contacted for this article acknowledged that their networks were not yet final and won't be announced before August and September deadlines for the exchanges.

Dr. Jeff Rideout, senior medical adviser for the Covered California state exchange, said some insurers have built networks that are “wholly new and created for the exchange” while others are using networks identical to their current products. He stressed that all plans included in the exchange had to get state and federal regulatory approval for network adequacy. Covered California says the 12 plans approved for its exchanges include 80% of the state's doctors and hospitals.

Barcellona noted, however, that while insurers may say they will offer tens of thousands of providers statewide, what concerns consumers is how many and which providers are available in their own area. “It's what you have locally that matters,” he said.

Some narrow-network exchange plans will exclude prestigious hospital systems, such as UCLA Medical Center and Cedars-Sinai Medical Center in Los Angeles; Northwestern Memorial Hospital in Chicago; and Vanderbilt University Medical Center in Nashville.

The UCLA Medical Center and its physicians have been excluded by all but one exchange insurer as of Aug. 15, said Kim Irwin, a UCLA spokeswoman, who added that all medical centers in the University of California system have been similarly excluded.

But other hospitals will participate widely in exchange plans. All of Tenet Healthcare Corp.'s hospitals in 10 states have signed at least one exchange plan contract, and half its hospitals have more than one contract, a Tenet spokesman said.

Still other hospital systems will be offering their own exchange plans, and their provider network will consist primarily of their own hospitals and physicians. These include the Scott & White Health Plan in Texas, the insurance arm of a six-hospital system; Preferred One in Minnesota, which is half-owned by six-hospital Fairview Health Services; and North Shore-Long Island Jewish Health System in New York.

A number of hospitals and hospital associations contacted for this article declined to comment on narrow-network plans on the exchanges, saying it's too early to tell how they will work. Ellen Pryga, director of policy for the American Hospital Association, said earlier this year that the requirements of the healthcare reform law “make it in the interest of health plans to keep their networks tight.” Public hospitals and academic medical centers have expressed concern that narrow-network plans will exclude them, reducing their number of insured patients and boosting their bad debt.

Juan Serrano, senior vice president for payer strategy at Englewood, Colo.-based Catholic Health Initiatives, with 86 hospitals in 18 states, said his system in general “believes that narrow networks, coupled with PPO, POS, or HMO-style benefits, will encourage health system differentiation in terms of overall value, and that this over time may favor those who deliver superior health outcomes, service experience and affordability.”

Mark Pascaris, a vice president and not-for-profit analyst at Moody's Investors Service, said the consensus among hospital executives is they expect exchange health plans to pay providers rates that are close to Medicare rates, which typically are significantly lower than commercial rates. And he predicted that exchange plan reimbursement rates will place downward pressure on overall rates.

There also are concerns that narrow-network plans will cause risk-selection problems in the exchanges because lower-priced plans with smaller networks are likely to attract younger, healthier enrollees and drive people with serious health conditions into plans with wider networks. That could force all plans to pare down their networks to survive, thus limiting consumer choice. Then regulators might have to step in.

Two exchange plan offerings in Los Angeles from Health Net illustrate the cost-saving advantage to consumers of a narrow network.

The Woodland Hills, Calif.-based insurer will offer a bronze-tier plan with a preferred provider network that will cost a 25-year-old enrollee $195 a month, according to the Covered California Health Plans booklet updated Aug. 6. In contrast, the insurer will offer a silver-tier plan—with lower cost-sharing than a bronze plan—with a narrower HMO-type network that will cost the same enrollee $174 a month. That HMO product costs about 25% less than the next least-expensive competitor, spokesman Brad Kieffer said.

Health Net is rolling out similar low-cost narrow-network offerings in Arizona and Oregon, he said. Doctor and hospital compensation will be based on a “mixed model,” which he declined to describe in more detail.

Kieffer said the company expects its exchange plans to win broad acceptance among consumers because its “tailored network” employer group plans already have proved popular. In the three states where Health Net does commercial business—Arizona, California and Oregon—enrollment in tailored network plans is 37% of its overall commercial enrollment. “We are careful to select providers that meet the twin goals of delivering quality care in an affordable manner,” he said.

At Hartford, Conn.-based Aetna, Paul Wingle, who leads the big insurer's exchange strategy, said his company intends to offer only narrow-network products on the exchanges in up to 14 states, including Arizona, the District of Columbia and New Jersey. “We know that on the exchanges the products are more like a commodity, and price will be king,” he said.

In addition, Aetna intends to sell narrow-network exchange plans under the Coventry brand, a company that Aetna acquired in May, in Delaware, Iowa, Kansas, Louisiana and North Carolina, though contracts won't be final until the end of August, Wingle said. In Florida, Illinois and Pennsylvania, the exchange health plans will be sold under both the Coventry and Aetna brands.

Aetna intends to serve exchange plan enrollees through its existing Aexcel network, which includes both specialist physicians and hospitals selected for quality and cost-efficiency, as well as through walk-in clinics and urgent-care centers, Wingle said.

Some provider and consumer groups are worried that narrow-network plans could disrupt relationships between patients and physicians. Currently, state rules on the adequacy of provider networks vary significantly across the country and generally are much looser than the federal rules for Medicare Advantage plans.

Dr. Jeremy Lazarus, immediate past president of the American Medical Association, warned that such disruptions could increase costs by requiring patients to undergo duplicative exams and tests.

In addition, the AMA and the California Medical Association have argued that the selection process for choosing participating providers is flawed. A RAND Corp. study of physician-cost profiling published in 2010 found that “reliability of physician cost profiles varied widely especially across specialties.” Those challenges prompted many insurers to sign a nonbinding agreement, called the Patient Charter, pledging to base selection criteria on standardized quality measures.

“How they do the metrics has been fraught with difficulty in the past,” Lazarus said.

Patient advocates stress that older patients and those with chronic illnesses such as diabetes, heart disease and cancer often require ongoing care management with several providers. Such patients who go out of their narrow networks could face high out-of-pocket costs. That could cause new bill collection headaches for providers.

Jessie Gruman, president and founder of the Center for Advancing Health in Washington, said she worries that exchange plans will focus too much on keeping premiums low and not enough on quality and outcomes, and that there isn't enough reliable information available for patients to use in evaluating providers. “We do better when we have a good relationship with our doctor,” she said. “Anytime you take choice away, people feel they have lost something valuable.”

But Sara Rosenbaum, a health policy professor at George Washington University, predicted that many of the people who sign up for coverage on the exchanges will be those who were previously uninsured, and they will be more concerned about simply having health insurance than which providers are in the network. “The dynamic is very different from the mid-1990s,” she said. “These are not people who have a lot of choice right now.”

She also said providers and patients better get used to the idea of narrow networks. “I don't think there is anything about this trend that is limited to the exchange market,” she said.

—with Harris Meyer

—M.P. McQueen is a freelance writer based in New York.