Healthcare Exchanges Evolve with Narrow Networks

Narrow networks are steadily becoming the primary way for insurance companies to be profitable on the exchanges.

Health insurance plans with limited networks of providers are common on the Affordable Care Act’s (ACA) health insurance Marketplaces (exchanges). Recent studies have found that these “narrow network” plans constitute nearly half of all Marketplace offerings in the first two years of coverage, with one analysis concluding that nearly 90% of all consumers had the option of buying such a plan if they chose.

Since exchange consumers clearly prioritize low premiums over a broad provider network (whether they fully understand the tradeoffs when purchasing exchange plans is an oft-debated topic), more carriers are looking to narrow networks as a way to lower costs and premiums.  As a result, one estimate says 75% of ACA plans in 18 states are expected to have narrow networks in 2017.

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Insurers have to balance their narrow network against the ACA federal network adequacy protections applicable to commercial health insurance markets. The provisions require all qualified health plans available on the Marketplaces to maintain a “sufficient choice of providers” and “provide information to enrollees and prospective enrollees on the availability of in-network and out-of-network providers.” The law also requires qualified health plans to include within their networks “essential community providers” (i.e. providers “that serve predominately low-income, medically-underserved individuals”), such as federally qualified health centers, family planning clinics, and certain specialty care providers.

Plans that provide limited or inadequate access to in-network providers make it more likely that enrollees will obtain care from out-of-network sources, exposing patients to significant expenses and the possibility of surprise medical bills. Physicians and other providers hoping to provide care for patients with exchange coverage need to work to be part of these networks, despite insurance company pressure in the other direction. From the providers perspective, many narrow plans have limited or no out-of-network payment provisions.

Future of ACA Exchanges and Narrow Network Plans

Despite substantial premium increases forecast for 2017, a number of insurers are struggling to profit on the ACA exchanges.  Many major insurers are choosing or contemplating an exit from the market. For 2017, Aetna is dropping 70% of its health plans in ACA markets, blaming a poor risk pool and “the current inadequate risk-adjustment mechanism.” Yet, despite some who argue otherwise, these trends do not appear to signal the end of ACA exchanges. They do signal that narrow network plans will remain and become more common.

For insurers, limited networks not only offer the opportunity to reduce costs but also the flexibility to create specific networks allows for a wider range of plan designs and a greater variety of coverage options for consumers.

For providers, narrow networks may reduce negotiating leverage.  Providers generally prefer few or no restrictions on a consumers’ choice of providers vs. a narrow network where providers feel they are faced with 2 bad options: accept low reimbursement or be excluded from the network. While insurers claim to use networks to promote quality with a better ability to capture provider performance, many providers are skeptical.

For consumers, narrow network plans present a critical trade-off. Some may value the premium savings associated with limited networks more than they do a broad choice of providers, while others may be willing to pay more in up-front premium costs for greater network flexibility or to secure access to a specific physician or care facility.

Analyses by McKinsey and Company concluded that within the first two years of Marketplace coverage, consumers on both ends of the spectrum had options from which to choose. Further, though the majority of Marketplace shoppers had access to both narrow and broad network plans, “no meaningful difference” was found regarding the quality of such networks.

Exchanges Not As Large As Originally Projected

Initial ACA enrollment projections predicted 24M people would enroll in ACA marketplace plans by 2016, vs. current enrollment of 11M. Also unexpected by many, the number of plans that offer a wide choice of doctors and hospitals is on a steady decline in 2016.Two-thirds of plans are health maintenance organization plans that offer care from only a limited choice of doctors and hospitals.

CMS has noted that although the uninsured rate for young adults has dropped by more than half since the implementation of the ACA, this group is still more likely than others to remain without coverage. Adults 25–34 years were twice as likely to lack health coverage when compared to 45–64 year old adult (15.9% vs. 8.1%) and adults in the 18–24 age bracket had higher rates of uninsurance than and 35–44 age group (13.7% and 14.3%).

Lower enrollment numbers have several explanations. One is that the Administration says employers have continued to provide health coverage themselves rather than send employees to the exchanges as originally predicted. A second is the weak signups from younger consumers noted above. A third is political resistance to the exchanges in many states, especially those which did not expand Medicaid.

Another reason is the early issues with exchange websites and the signup process. As a result, Insurers such as Blue Cross Blue Shield (BCBS) in Florida, Tennessee, and North Carolina have begun utilizing retail centers as a tool to boost enrollment and avoid website technology failures.

State Standings

A Kaiser Family Foundation report projected the number of counties with just one insurer selling exchange plans would rise from 225 counties in 2016 to 664 counties in 2017. A separate KFF analysis shows that after a brief spike in 2015, average exchange plan options per state have declined.

States in 2014 had an average of 5.9 insurers per state, and then in 2015 had an average of 6.9 insurer options, which fell to 6.5 in 2016 and is projected to drop to 5.8 insurers per state in 2017.

Distribution of Exchange Enrollment by Number of Insurers in 2016 and Potential Distribution in 2017

The future of narrow networks in the ACA exchanges will partially rest upon whether they can continue to draw more enrollees, as well as improve the risk pool to help to stabilize markets. CMS in June introduced their ‘Strengthening the Marketplace by Covering Young Adults’ plan which employs several strategies to reach out to young adults leading up to the 2017 Open Enrollment period.

Taking steps to increase enrollment and provide coverage to more young people, who are more often healthy than older individuals, is one way experts predict will help balance the ACA marketplace risk pool and reduce overall costs. A similar balance is needed between flexibility for insurers in designing networks while ensuring consumer have access to high-quality care. Narrow networks will become increasingly effective, experts predict, by implementing oversight and better standards to measure network adequacy.

Experts agree that the long-term implications of narrow networks remain to be seen. Given that the narrow network strategy relies on consumer behavior, one recurring theme is the need to educate and assist consumers in making informed choices.

Source(s): Bernstein, Sam, “Starbucks Announces Launch of Private Insurance Exchange for Employees,” American Health Line, July 22, 2016; Sweeney, Evan, “Study: Individual Market Premiums Far Lower With the ACA than Without,” FierceHealthPayer, July 22, 2016; Blavin, Fredric; Shartzer, Adele; Long, Sharon; Holahan, John, “Employer-Sponsored Insurance Stays Strong, with No Signs of Decay under the ACA: Findings through March 2016,” The Urban Institute, July 13, 2016; Small, Leslie, “3 Possibilities for the Future of the ACA Exchanges,” FierceHealthPayer, August 5, 2016; Herman, Bob, “Should ACA risk adjustment be more like Medicare Advantage?Modern Healthcare, August 20, 2016; Sanger-Katz, Margot, “Think Your Obamacare Plan Will Be Like Employer Coverage? Think Again,” NY Times, August 19, 2016; Sweeney, Evan, “Retail Centers, Narrow Networks Contribute to Florida Blue’s Exchange Success,” FierceHealthPayer, August 24, 2016; Drost, Heather, “What the Latest Insurer Exits Mean For the ACA Exchanges,” American Health Line, August 2016; Wilde Mathews, Anna, “Insurers Move to Limit Options in Health Care Exchange Plans,” The Wall Street Journal,  Aug. 31, 2016; Caspi, Heather, “Public Option Back On the Block?: What It Means For Private Payers,” Healthcare Dive, September 1, 2016; Haefner, Morgan, “75% of ACA Plans In 18 States Will Have Narrow Networks Next Year,” Becker’s CFO Report, September 1, 2016; Caspi, Heather, “While Uninsured Rate Hits Historic Low, Young Adults Still Not Sold,” Healthcare Dive, September 8, 2016