The number of insurance plans with narrow networks has increased after the implementation of health insurance exchanges (Marketplaces) of the Affordable Care Act (ACA). Narrow networks may reduce costs by: (1) restricting high cost providers, (2) allowing negotiation of discounted reimbursement rates in exchange for increased volume, and (3) excluding providers with high cost patients to promote favorable risk pools. The authors of this article characterize and quantify the association between provider network size and premium costs.
Among 1,075 plans analyzed, a majority were health maintenance organizations (42%) or preferred provider organizations (38%). The average network size was 30% participation among physicians in the service area with a roughly equal distribution among four of the five categories of network size (most were extra-small, small, medium, or large). After adjusting for plan type, deductible amount, primary care physician copayment, and plan issuer in each plan-rating area, the authors found that plans with an extra-small network were 6.7% less expensive than large-network plans and 13% less expensive than extra-large-network plans. After accounting for premium subsidies, the 6.7% difference between extra-small and large network plans translated to a 22% reduction in effective premium cost.
The difference in cost between extra-small and extra-large networks highlights an important tradeoff consumers make between premium cost and provider access. The range of networks and corresponding premiums is beneficial if consumers are making informed choices with respect to the network size versus the premium tradeoff. However, prior evidence suggests consumers are: (1) more sensitive to premium costs, (2) have a limited understanding of health insurance plan details, and (3) are unaware that narrow networks are associated with lower priced plans. Furthermore, the association between network size and provider quality is unknown; if narrow network plans include high-quality providers with improved access and outcomes, this plan design strategy has the potential to improve value.
While the fate of the ACA looks bleak in light of the recent election, the growth of narrow network plans shows no evidence of slowing. Successful implementation of narrow networks – if combined with promoting quality – has the potential to reduce costs and improve the value of health care.
This Policy Prescriptions® review is written by Michelle Lin, MD, MPH, SM.
The introduction of health insurance Marketplaces under the Affordable Care Act has been associated with growth of restricted provider networks. The value of this plan design strategy, including its association with lower premiums, is uncertain. We used data from all silver plans offered in the 2014 health insurance exchanges in the fifty states and the District of Columbia to estimate the association between the breadth of a provider network and plan premiums. We found that within a market, for plans of otherwise equivalent design and controlling for issuer-specific pricing strategy, a plan with an extra-small network had a monthly premium that was 6.7 percent less expensive than that of a plan with a large network. Because narrow networks remain an important strategy available to insurance companies to offer lower-cost plans on health insurance Marketplaces, the success of health insurance coverage expansions may be tied to the successful implementation of narrow networks.