Aug. 22—Predictions that narrow provider network plans will dominate in the coming state health insurance marketplaces appear to be coming true.

Among the 955 individual market health plans filed for 13 of the state insurance marketplaces authorized by the Affordable Care Act, 47 percent will offer narrow provider networks, according to recently released preliminary results of an unpublished McKinsey & Co. analysis. McKinsey found 42 percent of the exchange plans will use HMO models and another 5 percent will be similar exclusive provider organization plans.

HFMA’s Value Project has found that the growing use of such plans can carry serious consequences for hospitals, said Rick Gundling, FHFMA, CMA, vice president of healthcare financial practices for HFMA. 

“Providers in markets where narrow or ‘preferred’ network design have taken hold with both public and private payers have had to adapt to aggressive reductions in the rate of increase in their negotiated prices to stay within or be included in those network,” Gundling said. “These were coupled by intense focus on clinical strategies to reduce cost and maintain quality of care.”

To maintain their competitiveness where such plans are offered, hospitals need to prove their value within the context of their local markets, he said.

The emergence of the plans followed announcements by several publically traded insurers and health systems in the spring that they were planning to offer or participate in narrow networks among plans offered in the health insurance marketplaces. Each state’s health insurance marketplace, formerly known as exchanges, was authorized by the Affordable Care Act and will begin enrollment Oct. 1.

The use of narrow networks was a tactic insurers used to keep the costs of the new plans low. In exchange, included hospitals expected to benefit from more patients.

Narrow Advantage

Research on consumers’ preferences with more than 150,000 people testing a simulated exchange by McKinsey suggested that many cost-conscious consumers in the coming marketplaces will prioritize premium price when selecting individual plans, even if the plans include high deductibles or network restrictions.

“In repeated simulations of the exchange purchasing experience, more than half (55 percent) of the participants chose lower-cost Bronze or Silver plans with narrow or tiered provider networks,” stated a May McKinsey report on narrow network plans.

Stonegate Advisors LLC, a healthcare research company advising insurers on developing plans for the exchanges, similarly found “the cheapest plan wins every time” in the simulated exchange it developed, said Marc E. Pierce, president and founder of Stonegate.

“In most cases, if not all, those were tied to a narrower network in order to get to that lower price point,” Peirce said in an interview. “We found consumers are definitely willing to go with a narrow or restricted network, especially if they are able to save roughly 10 to 15 percent.”

Sixty percent of patients similarly were willing to go with the restricted network even if their physician was not part of it.

The move of insurers to plans offering smaller slices of providers in a given area was led by companies in Massachusetts, which enacted a precursor healthcare overhaul that similarly limited traditional insurer underwriting. Insurers already offering plans featuring extensive use of narrow provider networks include Blue Cross and Blue Shield of Massachusetts.

Similarly, the Affordable Care Act limits insurers' ability to restrict services, increase enrollees' cost sharing or spread costs to people with pre-existing conditions or the older beneficiaries.

Narrow network plans are most likely to include smaller hospitals and are least likely to include hospitals dominant in their market, Pierce said.

“Those that have the lion’s share or have some market power are not bending to the lower rates so the health plans are left with either going with a higher reimbursement rate or keeping them out,” Pierce said.

Publication Date: Thursday, August 22, 2013