Trends in Provider Networks

July 18, 2010 at 10:52 PM Leave a comment


Sometimes it seems that the more things change, the more they stay the same.  One of the trends in the 1990s was to narrow provider networks.  The objective was to drive up quality and reduce the cost of care.  This was achieved by limiting member choice to the physicians and hospitals most willing to negotiate favorable rates and able to achieve quality outcomes.

Insurers quickly learned that members preferred choice to lower premiums.  Therefore, the PPO with its broader provider networks but high premiums grew in popularity compared to the HMO.  Today, 60% of workers are enrolled in a PPO, 20% in an HMO.  10% of employees are enrolled in a POS plan, 8% in a high-deductible plan and 2% in a fee for service (FFS) plan.  In contrast, ni 1993, 46% of employees were enrolled in a FFS plan, 21% in an HMO, 26% in a PPO and 7% in a POS plan.

However, premiums for commercial plans have increased significantly.  Premiums increased from $2,196/$5,791 (single/family) in 1999 to $4,824/$13,375 (single/family) in 2009 (per KFF http://facts.kff.org/chart.aspx?ch=1023 accessed July 18, 2010).  This represents a 120%/130% increase over a 10-year period.  Premiums are expected to increase another 10% this year. (http://www.mcareol.com/factshts/factnati.htm accessed July 18, 2010).

Now, it seems like the pendulum is swinging back.  The significant increase in premiums and the generally-accepted need to rein in healthcare costs has encouraged insurers to offer plans that limit choice of providers in exchange for reductions in premiums.  Typically, insurers are offering plans that reduce the size of the physician network by half and the hospital network by one third.  In exchange, premiums are lowered by 15%.

These plans are being tested in places like San Diego, New York and Chicago.  While small employers are especially interested, even large employers are offering these plans.   National carriers like Aetna, Cigna, the UnitedHealth Group and WellPoint are desgning and offering  plans with limited networks.

The new health care law offers some protection against plans offering overly restrictive networks, said Nancy-Ann DeParle, head of the office of health reform for the White House. Any plan sold in the exchanges will have to meet standards developed to make sure patients have enough choice of doctors and hospitals, she said.

Ms. DeParle said the goal of health reform was to make sure people retained a choice of doctors and hospitals, but also to create an environment where insurers would offer coverage that was both high quality and affordable. “What the Congress and the president tried to accomplish through reform is to transform the marketplace by building on the existing system,” she said.

This approach is not a long-term fix to the high cost of care.  First, these plans only can be offered in geographic regions with enough providers available for insurers to choose between high-quality and low-quality, high-cost and low-cost physicians and hospitals.  With today’s physician shortages, there are not enough physicians available outside of urban areas to support plans with narrow networks comprised solely of high-quality/lower-cost providers.

Second, even in urban areas, there are not enough high-quality/low-cost physicians to serve all local employees.  Competition might encourage high-cost physicians to lower their fees to gain access to narrow-network plans.  However, many physicians do not have the resources or training to improve the quality of the care they provide. 

Finally, not all employees and employers will select narrow-network plans.  There always will be a portion of employees and employers willing to pay for broad networks, no matter how high premiums rise.  Perhaps labor unions and government plans and other organizations that tend to prefer or offer rich benefits will fall into this group.

Therefore, plans with narrower networks that emphasize higher-quality care are one solution to eliminating long-term costs in the healthcare system.  Other solutions are required to achieve true efficiencies in our healthcare system; efficiencies that eliminate unnecessary care through better clinical outcomes and administrative procedures.  Other solutions include, but are not limited to, value-based insurance design, patient centered medical homes, electronic health records and increased use of preventive care. 

I look forward to watching this trend.  Especially as a small employer in an urban area, I am excited by any option that enables me to offer cost-effective benefits to my employees.  I appreciate any opportunity to reduce the cost of benefits while they continue to enable me to attract a strong workforce and maintain an effective and productive workforce.

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Entry filed under: Healthcare Economics, Healthcare Reform, Insurance Design, Preventive Care, Value-Based Insurance Design. Tags: , , , , .

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