Narrow provider networks are an effective tool for keeping costs low, but employers are hesitant to jump into them, according to a new study.
Researchers at the American Economic Association (AEA) analyzed reimbursement rates and networks for Blue Shield HMO plans offered in California and found that such plans paid out about 12% less to hospitals than PPO plans with broader networks.
Plans with narrow networks were able to negotiate lower rates with in-network hospitals, according to the study. The researchers also noted that increased regulation of narrow network plans could lead to higher premiums and prices. Lower costs and premiums are beneficial to members, and are thus a boon to employers as well, the researchers said, so “employers and insurers may wish to work together to control spending through exclusion.”
Despite findings like these, the researchers noted that employers may be skeptical of such plans since employees may respond negatively to some clinicians being kept out of the network.
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Narrow networks are not a new trend, but they’re not as prevalent in the employer-sponsored arena as they are elsewhere, such as in the Affordable Care Act exchanges and in Medicare Advantage.
"A private insurer tends to engage in exclusion more than is socially optimal, but typically does so to a lesser extent than the average consumer would prefer because consumers often benefit from substantial premium reductions," according to the AEA study.
In October, the Kaiser Family Foundation estimated that HMOs made up just 16% of the employer-sponsored insurance market in 2018, compared to 49% for PPOs and 29% for high-deductible health plans (HDHPs). But that trend may be changing as employers look to reverse course on the amount of cost-sharing shifted directly on to employees.
The National Business Group on Health (NBGH) surveyed large employers in August and found them more likely to take an “activist” role in shaping their benefit design, and that they were moving away from HDHPs toward other options to bring down costs. About 30% said they intended to offer an HDHP for 2019, compared to 39% the previous year.
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Narrow network plans have traditionally been viewed as a dicey option as patients may not know what their benefits entail, putting them at risk for costly surprise bills. However, the NBGH survey found that employers are concerned that a “breaking point” will be reached in shifting higher costs to patients through higher deductibles and premiums.
The AEA researchers say additional research into the potential positives of narrow networks is warranted, to better account for changes in provider pricing and players entering and exiting regional markets. More work can be done to address plan members' concerns and misconceptions about narrow networks, they said.