In a recent New York Times opinion piece, Obama advisor Ezekiel Emanuel attempts to ease the minds of millions of Americans who may be selecting narrow network plans in the exchanges. In defending narrow networks, Emanuel cites the well-known example of Kaiser, which has for decades required enrollees to choose among only Kaiser-owned hospitals and Kaiser-employed physicians. He goes on to propose some “safeguards” for plans in the exchanges such as mandating that insurers disclose the criteria used to establish their network of providers and requiring that insurers pay for second opinions from elite out-of-network providers.
Perhaps surprisingly given our previous commentary, we agree with the general thrust of Emanuel’s argument, which is that freedom of choice is overrated. And while we do not agree with many of his recommended safeguards, our quarrel today is not with his proposals for even more new rules and regulations. Rather, our primary quarrel is with the vast majority of the individuals who chose to comment on, and often lash out at, Emanuel’s article. These comments are emblematic of the general misunderstanding of the role of narrow network plans in controlling the future growth of health care expenditures.
In a nutshell, this is the archetypal response against Emmanuel’s claim: “Evil insurers have given us narrow networks. The government must intervene in this bloodthirsty lust for profits. Give us freedom of choice! (And preferably with the government taking over the business of insurance altogether).”
Given previous comments on this site, we suspect that many readers of our blog might share similar sentiments. So we would like to take our readers on a stroll down memory lane to explain how insurers ended up creating networks, and why we are all better off for it.
Prior to the 1980s, states forbade health insurers (who were not HMOs) from restricting provider choice. The result was disastrous. Prices rose precipitously year after year – noted antitrust economist Dennis Carlton predicted (only half facetiously) that prices would soon reach infinity. And why not. Insured patients had no reason to shop around, and so price was irrelevant. Even with today’s high deductibles, most hospital patients and many ambulatory care patients reach their deductibles and pay only a fraction of their medical bills. If patients don’t care about prices, then providers will charge what they want. Some states responded by regulating prices, but these barely put a dent in medical price inflation.
Self-insured plans were exempt from state laws governing access, and by the mid-1980s some of these plans were offering narrow networks. Providers who wanted to be included in the networks had to offer much lower prices, which ate into profits but also encouraged efficiencies. By the early 1990s all states had revised their laws to permit narrow network fully insured plans and perhaps as a result of this development, for at least five years during the 1990s, health care prices (and the premiums that we paid for our health insurance) were virtually flat. Never before had Americans enjoyed such a respite from healthcare cost inflation. And then the managed care backlash hit.
Patients complained about unpaid bills and missing referral forms. Mostly, they complained that they couldn’t see their favorite provider. And that seems to be the essence of the ongoing opposition to narrow networks. What good is a low cost insurance plan if the quality of care is compromised? Networks expanded, and healthcare inflation returned.
But here is where the critics made their (literally) fatal error. Over a decade ago, the Institutes of Medicine published two landmark studies documenting serious deficiencies in the quality of care offered by American doctors and hospitals. Most of the deficiencies result from medication errors, lack of sterility, and poor surgical technique, with a toll that could exceed 100,000 unnecessarily fatalities annually. This does not even capture all the needless pain, suffering, and death resulting from botched diagnoses. If we value our health as much as we claim, it is absolutely essential that we seek out quality providers, especially those of us with complex conditions for which skill and experience can be the difference between life and death. But when it comes to how Americans think about the quality of healthcare providers, we are reminded of humorist Garrison Keillor’s fictional Lake Woebegone, where “all of the children are above average.” In the real world of health care, only half of the doctors are above average.
We have asked hundreds of people, in all walks of life, whether they agree or disagree with the following: “My primary care physician offers higher quality care than the average PCP.” Nearly 100% agree. The truth is that about half of them are wrong. If you agreed with this statement, there is about a 50% chance that you are wrong! We have asked cardiologists whether they agree or disagree with the following: “The thoracic surgeons that I refer to offer above average quality.” They all agree, but again, about half are wrong. So are half the surgeons who agree with the statement that their hospital offers above average quality.
The fact of the matter is that we implicitly restrict our own networks and we often do a bad job of it. We choose a primary care physician recommended by a friend. We choose the specialist recommended by the PCP. We choose the hospital recommended by the specialist. Yet time and again, we make lousy choices. Seen in this light, one has to wonder if restrictions imposed by insurers would be any worse than the restrictions we impose on ourselves. In fact, the (admittedly limited) empirical evidence suggests that insurer networks tend to exclude lower quality providers. This makes sense. Low quality healthcare often leads to more complications and higher costs. Choosing a high quality provider can be a win-win for insurers and patients.
Americans who are frustrated by our high cost and complex healthcare system may get some measure of satisfaction by criticizing insurers for restricting access. But how satisfied would they be if they understood that mandating broader access will drive up costs and maybe even harm quality?
So what can be done to improve the way we select our providers? It is well-known that when it comes to medical care, experience and quality are highly correlated. So when one of us learned of a family history of a deadly condition, he sought out a provider who has extensive experience diagnosing and treating this condition. Does this guarantee a good outcome? Of course not, but it does improve the odds. We can also turn to one of the many quality report cards available on the Internet. Some report cards are better than others, and all are far from perfect. But these report cards are not useless – high ranking providers are likely to offer better quality than low ranking providers. Yet to this day, most Americans ignore this information, as if putting one’s finger in the air is a better way to find a high quality provider than checking the empirical evidence.
Until we demand and act on information about quality, it is pointless to complain about narrow insurer networks. And when the time comes that we become savvy consumers, and not just belly achers, we can start to criticize insurers whose networks really are substandard.
And, this is where we differ from Dr. Emmanuel, we can do more than criticize, we can vote with our purses and take our business elsewhere. That is how we ought to be punishing insurers whose narrow networks fail to serve our interests.