Narrow networks can provide clear benefits

Health plans are redesigning benefits to encourage the use of higher-value providers. Empowered by data, they have been able to identify providers with a demonstrated ability to deliver quality, efficient healthcare and they encourage members to use these providers by offering incentives such as reduced cost-sharing.

These high-performance networks, also called “narrow” networks, represent an important opportunity for plans to preserve benefits and keep premiums affordable in response to healthcare reform.

A recent study on small employers' perspectives on health insurance coverage found that most were interested in health plans with smaller provider networks if they resulted in lower costs. Specifically, a majority of small-employer respondents (57%) indicated that they would choose a smaller provider network if it resulted in a 5% reduction in premiums, and an even greater number (82%) would choose a smaller network if it resulted in 20% lower premiums. A poll of consumers also showed similar preferences.

That said, employers and consumers demand quality. The concept is not about limited choice, but rather about constructing networks based on sophisticated data analysis that enables providers to demonstrate improvement across evidence-based guidelines and focus on making meaningful decisions for improving patient care.

Any apparent “limiting,” in other words, is deliberate and meant as an overall improvement to the network. For those who question how less choice in a health plan translates into lower costs, there are two components.

A health plan can decide to sign contracts only with hospitals that charge lower prices. This is important, given that there can be enormous variation in healthcare prices. For example, an appendectomy can cost anywhere from $1,529 to $186,955. By signing contracts only with providers who are much closer to the $1,529 end of that spectrum—and who also demonstrate good outcomes—health plans can lower the price of providing healthcare without compromising quality.

Secondly, health plans that work with fewer providers have the ability to negotiate lower prices. Basically, they are promising to buy in bulk from a smaller set of physicians, and can therefore reduce the cost they pay for each visit. This can lead to lower out-of-pocket costs for plan members.

Joseph Berardo Jr. is CEO of MagnaCare, an administrator of self-insured health plans for employers in New York and New Jersey.