A major innovation in health insurance plan design over the past several years has been the rapid growth of “narrow network” plans. Such plans either limit enrollee choices of providers, or place providers in differential cost tiers whereby individuals face higher cost in selecting some providers relative to others. This movement harkens back to the restrictions put in place during the U.S. initial infatuation with managed care in the mid-1990s. That episode ended badly for the limited choice model, as the “HMO backlash” induced regulatory restrictions on plans which handicapped choice limitations within the HMO model.
The latest growth of narrow network plans has been hastened by the introduction of health insurance exchanges under the Affordable Care Act (ACA). State exchanges have fostered strong insurer competition through both organizing the marketplace and through tying low income health insurance tax credits to the second-lowest cost plan in the silver tier. Insurers have responded to these competitive incentives in many ways, but perhaps the most notable is the expansion of narrow network insurance products. Such products are widespread on exchanges and appear to be growing rapidly.
As in the 1990s, these plans have faced substantial criticism. There are concerns that limitation in provider choice will restrict access to needed care and as a result reduce the quality of health care. There are once again legislative rumblings about regulations of such plans to ensure that this does not happen. And the growth of limited choice plans in the state exchanges has been a point of emphasis for critics of the ACA.
This debate has proceeded largely in an evidence vacuum. In a new paper, Robin McKnight of Wellesley College and I try to partially fill this vacuum by looking at a particular example of narrow network plans offered to state employees in Massachusetts through the Group Insurance Commission (GIC). The GIC was an innovator in offering narrow network plans to its employees, particularly in the context of a very generous Massachusetts employer-sponsored insurance environment. In 2011, the GIC went further, offering a strong financial incentive for employees to sign up for these plans. In particular, the state offered a three month “premium holiday” whereby employees who chose limited network plans would not have to pay their employee share of health insurance premiums for three months.
This large financial incentive induced a rapid shift into narrow network plans among eligible employees: about 10 percent of state employees who were eligible for the holiday switched to narrow network plans. Unfortunately for them (but fortunately for our research), the large subset of municipal employees who also obtain their insurance through the GIC were not eligible for this premium holiday. As a result, we were able to compare the experience of eligible state employees to that of ineligible municipal employees.
Our findings were striking. We found that those who moved into a narrow network plan due to this financial incentive used significantly less care – and paid less for the care that they did use. Overall, spending on health care fell by about 35 percent. Most importantly, this fall in spending was not uniform: we saw an increase in spending on, and utilization of, physician primary care, with large falls in spending on specialists, hospital inpatient and outpatient visits, and emergency room use. This suggests, in contrast to the common arguments that are made against narrow network plans, that they did not lead to a shift away from needed care – rather, they appear to have focused care in the primary care setting, perhaps through more binding restrictions on specialists/hospitals than on primary care physicians. This was true even for the chronically ill patients who were most in need of ongoing medical care. And it is at least partially explained by the pattern in enrollment in limited network plans; those who were able to keep their primary care physician were most likely to switch plans and saw the largest effects.
These results do not prove that any potential restriction on provider choice will reduce spending without restricting access to primary care. Network limitations vary enormously, and their impacts may depend critically on the underlying nature of the provider market. Nevertheless, these results shift the burden of proof to those who would argue that these low cost insurance plans are doing a disservice to enrollees.
Which speaks directly to the role of public policy in this arena. A strong backlash against narrow network plans, echoing the 1990s HMO backlash, could have a similar effect: a rapid rise in health care costs and health insurance premiums. At the same time, an important aspect of the ACA is broad insurance choice for enrollees – the law does not endeavor to force enrollees into a particular type of plan, but to clearly set out their choices and the financial ramifications thereof.
Proper regulation in this area might follow what we have done in Massachusetts, where recent laws have promoted the establishment of narrow network plans. At the same time, the state has mandated that any health insurer which offers insurance on the state exchange must include as an option their broadest available insurance network. This mix of regulations ensures both that there are narrow network options available but that individuals are not too limited in their choices.