It wasn’t long ago that the newly established health exchanges were being celebrated. Before the ongoing website catastrophe, politicians and policymakers were lauding the low premiums in these new health insurance market places. On September 24, President Obama said, “And the premiums are significantly lower than what they were able to previously get … California — it’s about 33 percent lower. In my home state of Illinois, they just announced it’s about 25 percent lower.”
How times have changed! Even supporters of the exchanges have rightly criticized the technical problems that have prevented millions of Americans from signing up. However, many critics are also complaining about the large number of health plan offerings with “narrow networks” of physicians that enrollees can visit for medical services. The Missouri Health Advocacy Alliance expressed “major concern” when Anthem excluded BJC HealthCare from its narrow network. Seattle Children’s Hospital, which was excluded from several exchange plans, has sued the Washington State Office of Insurance for “failing to ensure adequate network coverage.”
Criticism of narrow networks is misguided and counterproductive. As we explain below, narrow networks will be of little consequence to most of the individuals who sign up for the exchanges, and the elimination of narrow networks could eliminate our single best opportunity to harness market forces to reduce costs and improve quality. Indeed, narrow networks are largely responsible for the low premiums that were being celebrated just one month ago.
We admit that narrow networks may seem like a bad idea. They limit where patients can go to receive care and threaten to interrupt the physician/patient relationship. But there are two major flaws with this line of thinking. First, patients have a choice of many different health plans in the exchanges and these plans all have different network options. A provider who is not in one plan’s narrow network is likely to be another. Patients whose providers are not in any plan’s narrow network can always choose broad network plans in exchange for paying a higher premium. They will be no worse off than they are today, and if competition in exchanges works out as planned they may even be better off.
Once they sign up for a narrow network plan, there is no guarantee that patients will receive care from in-network providers. Big medical bills may result. But we doubt this is likely to be a big concern for very long, as patients learn to navigate the new networks. Seattle Children’s Hospital is rightly worried that some enrollees in narrow network plans will end up at their doorstep. But there are other high quality providers of pediatric services in Seattle. Once patients and referring doctors get used to the new networks, the only children who show up at Seattle Children’s Hospital will be those whose networks include the hospital, or those whose parents are willing to pay for out of network care.
If more of us move into exchanges (something that the Affordable Care Act actually stifles…see our previous op-ed on this topic), we may all have to get use to narrow networks. Employers rarely offer narrow networks because it is very hard to find a single network that appeals to all (or even a large fraction) of their employees and too expensive to offer a large number of different plans. Once individuals are buying insurance for themselves, one-size-fits-all insurance will go by the wayside and people can select the plan and network that best matches their needs.
Narrow networks are not some cruel attempt to limit patient choice foisted upon us by the insurance industry. Instead, these plans may provide our best opportunity for harnessing market forces to lower prices. Even high priced providers know they stand a good chance of being in broad networks. But insurers offering narrow networks can be picky about which providers they select. Across the nation, high quality/high price sellers like Seattle Children’s Hospital will have to prove their worth.
What if insurers ignore quality? If we have learned anything about quality in the past decade, it is that insured patients making their own provider choices have done little to reward measurable high quality, instead relying on more on brand names that may or may not indicate true quality. Will insurers be any worse? While it is theoretically possible that narrow network plans will focus on low costs, quality be damned, we are unaware of any narrow networks that include only the bottom of the quality barrel. It is also hard to imagine how it would be profit maximizing for all insurers or potential entrants to the exchanges to offer only low-quality narrow network plans. Rival insurers will surely be quick to point out the shortcomings of low quality competitors.
As a nation we have reached a consensus that we must lower medical spending. While this is often presented as a choice without trade-offs, that simply is not the case. Making our lower health care cost omelet is going to require breaking some eggs. Most Americans do not place must trust in insurers, but through narrow networks, insurers can introduce some much needed cost discipline on providers. And narrow networks can even include ACOs, should they offer proof of concept.
The intensified competition from narrow networks will be messy…patients will make mistakes, and quality will sometimes go unrewarded. This is not unlike our current system, only it will be less expensive and with greater access. The only sure fired alternative way to controlled cost is centralized planning. While some have faith in the ability of bureaucrats to choose what services to cover and how much to pay for them, we are less sanguine about the role of central planning in this and other settings.