The Effects of Narrow Networks

By September 10, 2014 Commentary

One way insurers kept prices down for many health insurance exchange plans was by having a limited network, usually one focused on providers who were believed to offer acceptable quality at a lower price.  This became controversial when many enrollees realized that providers they were used to seeing were no longer in the plan’s network.  Concerns about access and quality of care have been raised, and of course, the excluded providers have tried to force a political resolution.   (NBER Paper)    There has been little research to date on such plans, but a new study published by the National Bureau of Economic Research looked at results under a Massachusetts state employee plan that began offering a narrow network option.  The researchers looked at claims data from 2009 to 2012 to try to evaluate the utilization and spending effects of a narrow network option, compared to employees who did not have such an option.  about 160,000 individuals were included in the study.

The narrow network option started in 2012.  A narrow network had about 50% fewer physicians and one-third less hospitals than the broader network plans.  As an incentive to select the narrower network plan, there was a three-month premium holiday for employees who made such a choice.  The value of this incentive obviously depended on the premium-sharing which the employee faced for other options, but could be a substantial amount of money, as much as several hundred dollars a year.   The narrow network options typically have a lower premium share, so that creates another incentive to select them.  The results of the study show that employees with more premium-sharing enrolled in the narrow network option at a higher rate and that the premium holiday showed a 10% or more jump in enrollment in the narrow network plan.  Healthier employees are more price-sensitive and therefore were more likely to move to the narrow network option, but the health difference was not large.  Those employees who could switch without changing their insurer or their physician were obviously much more likely to elect to go to a narrow network.  It appeared that most narrow network enrollees were able to keep their existing physician relationship.

In regard to spending and utilization, the research suggests that spending declined by 36% for an employee who switched.  All categories of care appear to experience spending reductions, in particular ER, lab and hospital outpatient.   The reductions are due to both utilization decreases and lower unit prices.  Primary care visits actually increase, with specialist visits declining.  Hospital use may have declined and hospital prices appeared to do so.  Outpatients hospital use and unit costs decreased.  The number of prescriptions declined, but the average price per prescription went up, which seems odd, but perhaps there was more 90 day filling or pill-splitting, which may not be fully reflected in the analysis.  Chronically-ill patients experienced generally the same utilization and price changes as healthier cohorts, including more use of primary care.  There was only limited ability to investigate any quality outcomes.  But access, as measured by how far a patient had to travel to see a physician or go to the hospital, does not appear to have significantly changed.   The spending reduction, however, is largely occurring among patients who were able to keep their existing primary care physician when they switched to a narrow network.  This suggests that designing plans with a broad choice of primary care physicians but a much smaller selection of specialists and hospitals may cause the greatest savings with the least impact on primary care.

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