Health Plan Narrow Networks Pose a Price vs. Choice Tradeoff

Aim is to motivate service providers to lower their prices in exchange for a higher volume of patients

By Stephen Miller, CEBS April 10, 2015

Narrow provider networks in health insurance plans has been gaining popularity as a cost-containment strategy. Insurance plans with narrow networks seek to offer lower premiums by limiting the group of health providers available to plan enrollees, with the expectation that providers will negotiate a discount on their services in exchange for the promise of greater patient volume. Plans can also exclude from the network providers who overcharge for routine services, and those with low quality ratings.

Tiered networks, a variation of narrow networks, also encourage enrollees to use lower-cost health providers, but offer some coverage for other providers with greater cost-sharing by enrollees. The expectation is that providers will be motivated to lower the prices they charge for services in order to maintain or improve their tier ranking and market share.

A March 2015 brief from AcademyHealth, a health services research organization, summarizes key points from an expert panel the organization convened in December 2014 to discuss the impact of narrow networks and tiered networks on consumers. The brief, Health Plan Features: Implications of Narrow Networks and the Trade-Off Between Price and Choice, noted that the success of network strategies depends to a large extent on the following:

Whether networks are designed to provide adequate access to a range of health services.

Whether consumers have the information and tools they need to make informed choices.

Network Design

“It is important to understand the interplay between cost and quality considerations” used to develop networks, but “measuring the relative cost, efficiency and quality of health care providers is difficult,” the brief, drawing on the panelists’ views, stated.

Given the challenges associated with the construction of tiered networks, the panelists voiced concerns about the difficulty of interpreting the tiers. Another consideration was that “the data on which tiered networks are constructed may be from prior years and therefore may not reflect current practices or circumstances,” the brief noted.

Consumer Awareness

The policy experts felt that consumers care deeply about health insurance costs and that they are receptive to benefit designs that may reduce costs. But they questioned whether consumers have the knowledge and tools they need to make informed decisions about choosing narrow networks or choosing among tiers. “Some panelists noted that, while a certain amount of choice is desirable, too much choice can discourage consumer decision-making,” the brief said.

Provider Access and Adequacy

Regarding consumer access to high-quality care, the panelists raised issues concerning how often access considerations come into play when designing networks. They cited examples of providers who participate in networks but are not taking new patients or who have long wait times for appointments, and they pointed out the difficulties of building an adequate network for certain types of patients—such as for those with multiple chronic conditions or disabilities, or for those for whom English is a second language.

Another challenge was providing adequate access to mental health and substance use services without unreasonable delay.

In discussing the need to develop and enforce network adequacy measurement standards, several panelists noted that some degree of deference by insurance carriers to plan sponsors might be necessary, and “they spoke about the delicate balance between ensuring that networks are adequate and providing plans with the flexibility to negotiate with providers.”

In addition, “Panelists suggested that more proactive monitoring of network adequacy is needed. They observed that current measures of network adequacy are weak and depend heavily on health plans’ self-reported data.”

The consensus among the panelists pointed to “a need for greater attention to developing and supporting reasonable and effective means of ensuring network adequacy,” the brief concluded.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.​

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