A shift to narrow networks could provide a boost to small hospitals and health systems in competitive markets.

June 13—The broad movement of employer-sponsored insurance (ESI) plans toward high deductibles will be swamped by a new push to control costs through narrow networks, according to one group of industry researchers.

Employers are starting to ease off their years-long shift toward high-deductible health plans (HDHPs) after reaching the limit of what they believe their workforces will accept, according to new research by PwC’s Health Research Institute (HRI).

“The employers feel like: We’ve been doing this for 10 years and now we literally have employees looking at us saying, ‘I don’t feel like I have insurance; I’m paying the first $5,000, $6,000, $7,000, $10,000 out of my own pocket,’” Benjamin Isgur, leader of the Health Research Institute for PwC, said in an interview.

That pushback comes as HDHPs have spread from 4 percent of people with ESI in 2006 to 29 percent in 2016, according to Kaiser Family Foundation (KFF) research. Some employers have credited such plans with reducing healthcare spending as employees use less care, with research from the National Bureau of Economic Research finding a reduction of more than 11 percent in the case of a large self-insured employer.  

But that spending control has come at a price, with HDHP enrollees almost 60 percent more likely to have skipped or delayed receiving medical care or getting medication in the prior year than those with lower deductibles, according to a 2017 HRI consumer survey. Additionally, 69 percent of HDHP enrollees likely would choose a different plan type when available, even if it means making a higher monthly premium contribution.

That pushback has led more employers to look for new cost-control options, according to PwC. However, Isgur cautioned that HDHPs are not going away—they are just not growing as much.

“What it really reveals is employers are looking for the next big thing—what’s the next tool we can use to manage our costs—and that’s where it gets interesting for providers and pharmaceutical companies because the next big thing is to go after price,” Isgur said.

Without the lever of high deductibles to reduce costs, employers may consider supply-side management strategies—such as narrower provider networks and centers of excellence—that focus on bringing down price rather than utilization, according to the report.

The share of ESI plans using narrow networks at this point is fairly limited. For instance, only 7 percent of employers in 2016 offered ESI plans with a network that they would consider more restrictive than a standard HMO network—similar to the 2015 percentage, according to KFF. Additionally, only 6 percent of firms reported that they or their insurer had eliminated a hospital or health system from a plan network to save money.

Isgur expects the shift to narrow networks to follow the same path that HDHP implementation took.

“You’ll start to see more plans offered that are narrow networks as a choice at the beginning,” Isgur said. “And then over time, if the interest in them builds, we may see some employers moving to them as the only plan option.”

By 2015, nearly one-third of large employers offered employees only HDHPs.

The low use of narrow network plans was echoed in a 2015 Mercer report that found 15 percent of employers with more than 500 workers used “high performance” networks to some extent, while a 2016 Willis Towers Watson survey found 13 percent of responding larger employers offered high-performance or narrow networks.

However, a December study by the Employee Benefit Research Institute echoed the PwC findings that there are “noticeable signs of increasing interest [in narrow networks], and some indications that interest may increase in future years.” That research found a growing number of insurers offering narrow network plans to employers, and the authors’ interviews with large employers found that many were at least considering adopting narrow networks or expanding their use.

“You have to look before you leap because just as [HDHPs] can have a dissatisfaction for an employee, a narrow network can as well,” Isgur said. “So a lot of it is the education of ‘Do I get a cheaper premium for having a narrow network? Do I still have enough choice in there to make it work for my family or not?’”

Hospital Positioning

Hospitals and other providers should be preparing to position themselves for a possible proliferation of narrow networks.

“It really shifts the game for them,” Isgur said.

Narrow networks are a long-standing part of the value-based care continuum, and employer use will increase as part of the growing emphasis on value-based care. So providers will need to compete to get into such networks.

But is admission to narrow networks about improving quality or just offering the lowest price?

“It’s a combination of both; that’s really where the sweet spot is,” Isgur said. Hospitals “are going to have to work on both sides—they’re going to have to show those quality metrics and they’re going to have to show that they are competitive.”

And part of that competitiveness is showing that the provider can deliver various types of care more efficiently than others in the market.

An unexpected benefit of narrow networks is their ability to provide a boost to small hospitals and health systems in competitive markets, Isgur has observed.

“The larger systems are typically the ones most often sought after for broad networks, so they don’t have to necessarily be as competitive on price,” Isgur said. But smaller, more efficient health systems “may now have a way to really increase their volume by being part of these narrow networks.”

Other Trends

Other key industry points identified in the PwC report include:

  • Possible reinvigoration of HDHPs through healthcare reform measures that have provisions to expand the use of health savings accounts, which are paired with HDHPs
  • Increased opportunities for providers to take on more risk and work directly with employers by focusing on improving care management and optimizing their use of physician extenders and nonclinical staff to keep costs down
  • Expected increase in wages following a multiyear hiring boom

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Tuesday, June 13, 2017