Some health plans sold through the Affordable Care Act’s (ACA) health insurance marketplaces use "narrow networks" of providers: that is, they limit the doctors and hospitals their customers can use. Go to Doctor A or Hospital A and the plan will pay all or most of the bill. Go to Doctor B or Hospital B, and you may have to pay all or most of the bill yourself.
The narrow network strategy emerged long before the ACA, during the managed care era in the 1990s, and insurance companies and large, self-insured employers have used narrow networks ever since to control health care costs. In fact, for the first time, the ACA creates new consumer protections requiring that insurers provide a minimum level of access to local providers. A number of states have exceeded these federal standards using their discretion under the new law.
Nevertheless, some consumer advocates and ACA critics still find narrow networks objectionable. Narrow networks mean that some newly insured people are no longer covered for visits to previous providers, or, if they didn’t have a doctor before, are limited in their new choices. Not infrequently, narrow networks exclude the most expensive doctors and hospitals in a community, including some specialists and academic health centers. More expensive doctors and hospitals are not necessarily better, but for patients with a rare or complex health problem, such restrictions can be problematic.
Welcome to the world of competition in health care, because that is what narrow networks are about. Narrow networks are used by competing plans to control health care costs, and perhaps improve quality as well. In fact, if you don’t like narrow networks, you’re saying, in effect, that you don’t like competitive solutions—as least under current market conditions—to our health system’s problems.
The competitive logic behind narrow networks goes like this. ACA marketplaces require that qualified health plans with comparable actuarial value (at platinum, gold, silver, and bronze levels) display their costs side by side in online insurance marketplaces. This makes it easier than ever before to make apples-to-apples comparisons among health plans, and creates unparalleled pressures on insurance companies to keep their prices down so as to attract new customers.
In the past, insurers often kept prices down by limiting benefits or cherry-picking healthy customers. The ACA takes these options off the table. As noted, within any of the four categories, health plans must offer roughly comparable benefits. And the ACA prevents plans from excluding consumers with preexisting conditions or increased health risks. The result is that to compete on price, insurance companies must control the costs of the care their customers use.
This is great in theory, but enormously difficult in practice, especially for most private insurance plans. High prices charged by providers are a major reason for high costs. Medicare and Medicaid use their regulatory authority to set prices, and providers really can’t object because these public programs have such large market shares that many doctors and hospitals can’t get along without them. But individual private insurers lack the market power in most communities to negotiate better prices, and banding together to increase their clout would violate antitrust laws.
Narrow networks are a partial solution to private insurance companies’ dilemma. Plans contract selectively with doctors and hospitals who charge lower prices or have a track record of treating episodes of illness less expensively. Narrow networks also give private insurers more market clout. By guaranteeing their chosen caregivers a certain volume of business, health plans acquire the leverage to negotiate better prices in future contracts.
Some plans also use quality metrics to ensure that less-costly providers have comparable or better quality. Thus, the quality of care in narrow networks may be equal to or better than the care patients receive in unrestricted plans.
If the narrow network approach sounds familiar, it should. This is what virtually every company in every other industry does every day to the acclaim of its customers, Wall Street, and many critics of narrow networks. Picking low-cost suppliers that meet quality standards is the key to business success the world over.
The controversy around narrow networks throws into bold relief a much broader debate about the roles of competitive and noncompetitive solutions to our nation’s health care problems. Most other countries in the developed world control health care costs and prices the way Medicare does. Government, or an agent of government, negotiates provider reimbursements that meet national cost goals. Consumers then have pretty much unrestricted choice of provider.
In the U.S., such centralized regulatory solutions are anathema, except in the case of Medicare. But so, it seems, is the pain that private competition inflicts on patients, who, to great public consternation, find they can’t use the doctor or hospital they want.
Government may respond to the narrow network controversy by further regulating private insurers’ contracting practices. Whether this will succeed in providing more relief to consumers, while controlling costs, remains to be seen.
But one thing is clear. Competition in health care sounds like a good idea. But when its effects surface, the public reacts as if health care is a right, not just another one of those gas grills or wide-screen TVs that line those long aisles at your local retailer.