Narrow networks and price takers

A regular commenter asked me a good question via e-mail this morning:

This morning on my local NYC public radio station, there was a call in segment regarding  the cost of polices on the exchanges coming in lower than anticipated. A woman caller, claiming to be a physician, was stating that she would not buy her coverage on the exchange, because the payment rates to providers was less than what is paid, if she buys her insurance directly from the provider. (Blue Cross.) She also stated that a significant number of doctors will not accept the exchange coverage policies as a result of the lower levels of reimbursement. If this is true….

This is true.  This is the provider side of low cost narrow networks. 

Wonkblog has a good explainer on narrow networks from the patient point of view:

Narrow networks are health insurance plans that place limits on the doctors and hospitals available to their subscribers…

Less choice in a health plan typically means lower premiums. First, the insurance plan can decide to only sign contracts with the hospitals that charge lower prices…

Narrow network plans have become increasingly popular in recent years, growing from 15 percent of the insurance plans that employers offered in 2007 to 23 percent in 2012….

approximately 70 percent of the exchange plans are either narrow or ultra-narrow plans, according to a study by McKinsey and Co. The consulting firm defined “narrow” as having at least 30 percent of the 20 largest hospitals in the geographic region not participating

Pricing and indepdendent quality metrics are at best minimally correlated.  Narrow networks can be both cheap and effective at delivering high quality health care.  They can also be cluster-fucks, but that is not a function of narrowness per se. 

So how does a network go from being a broad network to a narrow network.  Let me take Mayhew Insurance as an example.  We offer two networks on the Exchange.  The first is our regular commercial network minus a few idiosyncratic opt-outs.  It is 99.8% of our regular network.  Since we are including everyone, we don’t have a ton of pricing leverage as the providers know we are the price-taker in this case.  We’ve offered our standard commercial rates which range from Medicare plus 20% to Medicare plus 125% depending on specialty, location and group size/clout. 

The other network is Mayhew Narrow.  This is a network that is 47% of the general network.  The way that the network was assembled was that we set a price that we would pay at Medicare plus a smidgen (highly technical term right there).  Company reps went out to the general network and asked if they wanted into the Exchange network at Medicare plus a smidgen.  This allowed us to be price-makers as a company.  The first round produce a network that was almost good enough to sell.  A second pass at a slightly better smidgen went to several selected specialty groups that filled out the network to a point where the sales people thought we could sell a broad enough network at a low enough price point. 

There are a lot of providers who aren’t in Mayhew Narrow but are in Mayhew Big.  Most of those providers are out for one of two reasons.  The first is that they were willing to take Medicare plus a smidgen but did not have admitting privileges to hospitals that were also willing to take Medicare plus a smidgen and were unwilling to get privilges at a Mayhew Narrow hospital.  The second is a provider or their finance manager looked at Medicare plus a smidgen and laughed at the number. 


17 replies
  1. 1
    japa21 says:

    As Wonkblog pointed out, the narrow network is not new and has been used by payors for several years. Even before the exchanges, insurance companies would create special products which they could offer for a lower premium but only by creating the narrow network with lower reimbursement.

    Frequently, these products were also sold not only to individuals but also to companies trying to be able to provide employees with coverage but with limited resources to pay for such coverage.

    Basically, it became a case of either lower reimbursement, which resulted in lower premiums, or worse coverage with high deductible, copays, etc.

    Frequently, providers were sold on accepting lower reimbursement based upon the likelihood of increased volume or other perks. I once worked with a company that promised providers their claims would be processed within about half the time that was promised to the normal network providers.

    As you mention, part of the problem is finding doctors with privileges at participating hospitals willing to accept the lower reimbursement and vice versa. However, in this day and age of hospitals owning better than 50% of physician practices, contracting usually involved both the hospital and physicians.

  2. 2
    Stella B. says:

    I live in an area that is dominated by several BIG medical groups and handfuls of independents. Every one of the BIG groups is contracted with one or more exchange plans at every “metal” level. My former employer north of here is also contracted with multiple exchange plans.

  3. 3
    Richard Mayhew says:

    @Stella B.: Metal level is very different than network.

    Metal is a characteristic of what the insurance company will pay out for the patient. Network is where care can be delivered for the patient.

    It is quite possible for an insurer to have two seperate networks at every metal level (hell, it is most likely quite common on the Exchange)

  4. 4
    Violet says:

    I freaking hate this kind of thing. It means you and your entire family–and anyone else who might be an emergency contact–needs to know your network and what hospitals are in and out. Because in case of some emergency, when the ambulance driver asks you, or if you’re unconscious then any other family member or whoever is there, “What hospital do you (they) want to go to?” you need an answer. You answer Hospital A and it turns out they’re not in your network, you’re screwed.

    It’s so complicated for the average person. I just wish it weren’t so damned hard to figure out and deal with on a daily basis.

  5. 5
    japa21 says:

    @Violet: In general, ambulance drivers have limited options. They usually are required to take you to the nearest hospital. This can be different in a large metropolitan area with sveral options with fairly equal distances. Also, again in general, most insurance companies will pay an out of network hospital at the same level they pay an in network hospital for emergency care. Some states have put in place laws to enforce that. In those cases, it also usually applies to any physicians, such as ER docs, radiologists, pathologists who have also been involved in the ER treatment.

  6. 6
    Violet says:

    @japa21: Maybe things have changed but this was not the case a few years ago when a family member was in a car accident (not his fault at all–other person was ticketed) and had to be taken to the hospital and checked out via MRI and had lacerations sewn up. Wasn’t admitted. Charges from everyone including ambulance service. Not all in-network.

  7. 7
    kindness says:

    It was my understanding that all the policies that are ACA compliant are available on the exchanges as well as from a human working for one of the Carriers. I don’t understand what this physician was saying more than likely.

  8. 8
    Pseudonymous Bosch says:

    @Richard Mayhew: I poke around the federal exchange every once in a while to see what’s what. My company offers a high deductible HSA compatible plan which is The Suck for most people (we happen to be OKish — our family of four has two insulin dependent T1 diabetics and we hit the deductible cap reasonably quickly in the year, after which the insurance becomes pretty good.) But my employer re-upped in November, avoiding what they claimed to be a near-tripling of premiums — and we pay a decent amount out-of-pocket as it is. I am unsure of whether they will drop it next year and just take the hit and either go on the exchanges themselves as a small business or let us buy our own (non-subsidized — we’re professionals) policies.

    The thing I check first is whether our regular doctors are in network for these plans, and there’s usually only one plan at a given metal where our endos are in network. Is there a way to tell (other than checking the insurance companies’ web sites, or based on my experience looking at price) what the breadth of the network for a given plan is on the exchange?

  9. 9
    japa21 says:

    @Violet: A lot depends on who the insurance company was. A couple, whose names I can’t mention, are somewhat notorious for this behavior.

  10. 10
    kindness says:

    @Violet: No in an emergency you go to the closest hospital if it is that dire. Yes, the copays will be different but your Insurance carrier will pay something for the visit.

    For Kaiser you have to call them up and tell them what you did and then they fill out a data sheet.

  11. 11
    Violet says:

    @kindness: But that’s my point. If Hospital A has an agreement with your insurance so that co-pays are $100 and Hospital B has an agreement so you pay $500, then it sure would be good to know that up front. Of course that’s assuming you can tell them because you’re conscious. And you’re close to whatever that hospital is.

    @japa21: Yeah, that’s also my point. It varies by insurance company, by plan, by state, by location within a state. It’s just maddening.

  12. 12
    Karen in SoCal says:

    I really wish this concept of “narrow networks” was explained better on the exchange where you select a plan. In my case (in CA) one of the options was HealthNet at a price about half of Blue Cross/Blue Shield. I’m sure this is an example of a narrow network, but I’m sure plenty of people are unaware of what they’re getting when they opt for this plan. I signed up for an Anthem Blue Cross silver plan and am still waiting for them to send me the enrollment package and ID card. I hope I’m not in for an unpleasant surprise.

  13. 13
    Richard Fox says:

    For me– my concern is finding a dentist on the exchange where I can get good (lower) prices than I got via my current dentist. He is not going on the exchange (not enough money in it for him) so I am about to hunt for someone to replace him in NYC. I am hopeful it will be better than 50 percent than my insurance company paid out. We’ll see.

  14. 14
    cthulhu says:

    The HMO option for UC employees is provided by HealthNet. We selected it for many years but the price kept increasing. About 3-4 years ago, they started offering HealthNet Blue & Gold which was their restricted network version at substantially lower cost but I didn’t bite because I happen to really like my doctor (I will point out I am the only one in the family that has been super satisfied with their particular PCP year after year). For 2014, HealthNet B&G is all there is, the unrestricted HealthNet is no longer offered (We, for various reasons had switched to one of the PPO plans a couple of years ago so this didn’t really affect us). But the point is that this same drive toward encouraging more people to be on limited networks is certainly not something the ACA created and it would be happening regardless, however you get your insurance.

  15. 15
    dp says:

    I may have posted this here before, but a narrow network would have saved me a little less than $250 a month on my ACA premium (it was about $860 a month, while the broader network we settled on is about $1100 a month, which is about $100 less than we paid in 2013). We went with the broader one because (as old farts) we have established relationships with doctors who were all on the broader network.

    If we had no chronic conditions being followed, I’d have gone with the narrow network. But I’m still happy!

  16. 16
    Ruckus says:

    There was an editorial in the LA Times today that is related to this. And it brought to mind a Dr that I used to know who worked 2 jobs to send his kids to college. Told me his son, who wanted to go to med school, would cost him about a half a million for college and med school. That’s an average of $40,000 a year. So yes I would imagine that a lot of Dr would laugh at getting less money.
    But I thought I read on BJ that Dr income were a small part of the cost of health care. Every little bit hurts or are they a fraction of the problem?

  17. 17
    nanute says:

    @kindness. What this caller was saying is that she did not have the option to buy broader coverage on the exchange. She could only get the broader coverage by going through the carrier directly. (In this case BC/BS.) The premium was a bit higher than what is offered on the exchange, but she was willing to pay more, and furthermore, she noted that many physicians will not accept the exchange coverage because the reimbursement rates are too low. As I noted in my e mail to Richard, I think this could be a serious problem for the success of the ACA.

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