Most exchange plans are narrow network plans. This means hospitals and doctors are excluded from the plan due to either pricing or corporate strategy. Expensive providers are culled if there are nearby options that are cheaper. This is leading to really good premiums as comparable Exchange plans are coming in under group health insurance premiums. The trade-off is restricting choice to only providers that are willing to reduce their prices.
Washington State starkly illustrates this trade-off as the Seattle Children’s Hospital was excluded from
all most of the narrow network plans on the Washington State Exchange initially.
The Monterey Herald has a good explainer:
Left out are hospitals such as Seattle Children’s, excluded from five of seven plans on Washington’s state insurance exchange.
The hospital, which has sued the state to be included in more plans, is struggling to get paid for care given to about 125 children since Jan. 1…
Seattle Children’s Hospital, for instance, sued the Washington Office of the Insurance Commissioner…
the state responded that “nothing in the law dictates inclusion of a specific provider, regardless of their preeminence or sympathetic patient base. So long as issuers meet the legal standards for adequacy and covered services, the OIC does not manage their business arrangements for them….”
The hospital, meanwhile, counters that the uniqueness of its services and the training required by its doctors to carry out patient care deserve more compensation.
“We take care of a very unique group of children, and the amount of resources we need to have is very expensive,” Melzer said. “We do 100 percent of transplant care and 70 percent of cancer and cardiac care in the state….
“The cost of Children’s non-unique inpatient services is 100 percent higher than such services at other hospitals in our statewide network,” he [Earling, Insurance Company spokesman ]said.
A pediatric appendectomy, which cost $23,300 at Seattle Children’s, is priced at $14,100 at Premera’s other in-network hospitals, Earling said, adding: “The issue, at the end of the day, is access at a more affordable price. That’s why their non-unique services are not covered.”
Rebekah Blankers [mother of child with unique diagnosis that can be treated at Seattle Childrens’] isn’t waiting to find out what Premera considers unique or non-unique. She has switched Gabriella to a …plan that will cover all care done at Seattle Children’s. ..the rest of the family…will stay on the less-expensive LifeWise plan.
There are a lot of issues going on here which we’ll take a look at below the fold:
When an insurance company creates a new product, it has to file a network with the state regulating entity. That regulating entity is supposed to review the network and verify that there is sufficient adequacy of access. “Adequacy” varies by state and location in a state. Washington State has reasonably tight urban adequacy standards. Health plans can meet adequacy by either having a lot of the right types of doctors and facilities in a network, or by issuing waivers saying that out of network treatment for medically neccessary services that can not be provided in network will be paid as if they were in network from the member point of view. If the numbers or waiver system works out correctly, the state regulators don’t care too much how the network meets adequacy. Evidently, the Washington State Exchange plans met adequacy by excluding most services at Seattle Children’s Hospital.
Why would insurers want to avoid flagship specialty hospitals? Wouldn’t that be a unique selling point that a plan offers full in-network access to the flagship academic and specialty medical centers in the region. It would be a differentiator that a place that can do seven organ transplants can also take care of basic care better. That would be the immediate logic, but there is a significant amount of research that shows more expensive flagship hospitals aren’t significantly better on routine care. Instead, they specialize in one-off and low probability cases that require very high end care, and use the lower intensity patients as a means to cover the capital and open the door costs required by the highest end care.
For instance, when I got my vascectomy, I chose a regional academic medical center because it was on my bus line, not for quality. That decision cost the insurance company several hundred additional dollars than if I had gotten snipped at either a community hospital or an outpatient ambulatory surgical center. Some of that cost increase was due to cross-subsidization of medical provider training, but a signficant portion of the increase was the academic medical center could charge more because there was significant demand for the perceived quality bonus that it had compared to community hospitals. That perceived bonus is directly built from the regional medical center’s world class reputation for a certain class of transplants and another class of highly complex surgeries. But statistically, the high reputation and high costs hospitals don’t have a particular quality differential for routine care.
Seattle Children’s Hospital is an excellent hospital that is designed to handle the extremely unusual and intensive pediatric care patients. For those cases, paying a lot makes sense. Including the hospital in network makes sense as the insurance companies will be paying for those services anyways on a waiver basis. However, the insurance companies are now competing primarily on price and minimally on network in the Exchange world. With that proviso, the insurance companies don’t want to pay for the care of a simple fracture at Seattle Children’s prices, they don’t want to pay Seattle Children’s prices for non-complicated appendicitis, they don’t want to cross subsidize the extremely high end care.
Ideally, the insurance companies that want to mimize their claims pay-outs want to have Seattle Children’s or any other high cost specialty hospital in network for a la carte services such as organ transplant and regional trauma centers of excellence, but out of network for pneumonia or routine elective surgery or setting broken ankles. Most of the specialty hosptials don’t want to go to a la carte contracting as that cuts the cross subsidization that they need to cover fixed costs.
The mother of the child with an intensive pediatric diagnosis that requires high end specialty care is responding rationally to the current situation. She is moving her expensive and sick kid to a plan that includes the hospital she needs while keeping her healthier kids on the cheaper and more limited network plans. As a side note, this behavior is being observed elsewhere. Narrow networks that don’t have leading specialty and academic medical centers in the networks are cheaper than networks that have the specialty and academic medical centers. The skinnier plans sell well to people who don’t have known current medical needs, while the more comprehensive networks are selling to people with pre-exisiting conditions and pre-exisiting treatment relationships.
This individually rational response will lead to the risk pools for the two plans that offer general in-network access to Seattle Children’s to be sicker than average for kids than the five plans that don’t offer in-network access to Childrens. The risk corridors and re-insurance system will mitigate most of the local adverse selection, but adverse selection will be at play. This leads to a rationale where the two offering insurers should be tempted to exclude Childrens in the next filing.
At that point, a stable, sub-optimal equilibrium will be achieved with no insurance plan offering full in-network access to a specialty hospital. No plan would have the incentive to offer in-network access as they know that they’ll just collect all the sick kids from the other plans. The risk moderating factors will help absorb some of the shock but not all.
So what are the policy options?
1) Do nothing and allow a stable, sub-optimal equilibrium to persist.
2) Have the state mandate a la carte contracting for unique services for specialty hospitals
3) Have the state mandate full in-network access for all qualified health plans at certain high end and high cost specialty hospitals for routine and unique services
4) Do nothing on the network side, but have the feds aggressively make risk adjustment transfers to compensate the in-network networks from the lower risk plans that don’t have specialty hospitals in network.
5) Go for full repeal of Obamacare and neglect the fact that this problem has nothing to do with Obamacare per se, but it produces really sympathetic and telegenic victims who will cry on TV.