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Obamacare’s narrow networks are going to make people furious — but they might control costs

Welcome to Health Reform Watch, Sarah Kliff’s regular look at how the Affordable Care Act is changing the American health-care system — and being changed by it. You can reach Sarah with questions, comments and suggestions here. Check back every Monday, Wednesday and Friday afternoon for the latest edition or sign up here to receive it straight from your inbox. Read previous columns here.

"Surprise! Kentucky health exchange networks may exclude your hospital," reads one recent headline in the Louisville Courier Journal. Or, as Time magazine puts it, "Keeping your doctor under Obamacare is no easy feat."

Behind these stories lurks a policy idea that's central to Obamacare's approach to controlling costs, but anathema to many health-care consumers: "Narrow networks."

Just the name itself, a narrow network, sounds like a miserable, restrictive health plan that you would just as well avoid. But health-care experts love narrow networks, pointing out that they underpin some of the country's most successful health plans.

So what's a narrow network?

It's best to start with some definitions: Narrow networks are health insurance plans that place limits on the doctors and hospitals available to their subscribers.

They tend to do this in two ways, the first -- and most obvious -- by simply not paying for trips to doctors that aren't in their restricted network. The second version, a bit more nuanced, typically has health insurance plans charging higher co-payments to go see a doctor who isn't in the "top tier." In this case, you can go out-of-network -- but will have to pay a higher price in order to do so.

Why shouldn't I be able to see any doctor I want?

Less choice in a health plan typically means lower premiums. First, the insurance plan can decide to only sign contracts with the hospitals that charge lower prices. There is huge, huge variation in health-care prices; an appendectomy, for example, can cost anywhere between $1,529 and $186,955. By only signing contracts with providers who are more in the $1,529-range -- and, ideally, who also have pretty good outcomes on their appendectomies -- insurance plans can lower the price of providing health care without compromising quality.

Second, insurance plans that work with a smaller handful of providers would have more leverage to demand even lower prices from these hospitals and doctors. They're essentially promising to buy in bulk from a small set of physicians, and can therefore reduce the cost they pay for each visit. That, then, allows them to offer lower premiums to the people buying health insurance.

Did Obamacare invent narrow networks?

No, Obamacare is accelerating a preexisting trend. Narrow network plans have become increasingly popular in recent years, growing from 15 percent of the insurance plans that employers offered in 2007 to 23 percent in 2012.

As you can see in this graph from the Kaiser Family Foundation, narrow networks were taking hold well before the Affordable Care Act, as employers looked to tamp down on premiums growth. But most observers also agree that the health-care law helped accelerate the growth of these plans.

So what's Obamacare doing here, exactly?

The move toward narrow networks in Obamacare is a function of the way the law sets up competition between insurers on the exchanges. Insurers can no longer compete by trying to be the best at only covering healthy people, or by endlessly lowering benefits and raising deductibles. So limiting provider choice emerged as one of the few levers that health plans had to hold down premiums. And a lot of them did: approximately 70 percent of the exchange plans are either narrow or ultra-narrow plans, according to a study by McKinsey and Co. The consulting firm defined "narrow" as having at least 30 percent of the 20 largest hospitals in the geographic region not participating in the plan.

Many exchange carriers are offering limited provider networks," Timothy Jost, a supporter of the health law, writes in a recent edition of Health Affairs. "Consumers will like the low premiums but will be unhappy to learn that their doctors are not available and shocked to discover charges from out-of-network specialists when they go to in-network hospitals."

Are narrow network plans worse for patients?

The growth of narrow network plans, as Jost points out, isn't one that tends to be favorably viewed by patients. When they're told certain doctors are off limits, subscribers are predictably frustrated. But whether narrow networks are actually bad for patients' health -- whether losing access to the most expensive hospital also means losing access to the best hospital -- is a totally different question, and one that's difficult to answer.

The patients' worry tends to be losing access to the best doctors, especially when the networks getting cut out are the most expensive. It makes sense, intuitively, that the most expensive hospitals are probably the best -- if not, why would they charge so much money?

Alas, the health-care system is anything but intuitive and, most research suggests, there is very little connection between how much we pay for health care and the quality of the provider. "Evidence of the direction of association between health care cost and quality is inconsistent," Peter Hussey, Samuel Wertheimer and Ateev Mehrotra wrote in a recent RAND literature review. "Most studies have found that the association between cost and quality is small to moderate, regardless of whether the direction is positive or negative."

In other words: It's completely possible that cutting out an expensive hospital cuts out a top-notch provider. And, it's equally possible that cutting out an expensive hospital eliminates a provider who charges excessive fees without delivering really great medical care.

"Narrow networks are not some cruel attempt to limit patient choice foisted upon us by the insurance industry," David Dranove and Craig Garthwaite, two professors at Northwestern University's Kellogg School of Business, write. "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."

And, in some cases, the narrowness of a network can be a big boon: Doctors get to know their smaller group of patients very well. As Bill Eggbeer and Dudley Morris point out in a recent BDC Advisors's white paper, Kaiser Permanente is arguably the country's largest narrow network provider, although it rarely gets described that way.

Kaiser limits patients' choices to the doctors it employs -- but also gives each and every one of those doctors access to a patient's medical record. In this narrow network there's space for managing a patient's care across different visits. The health plan has "approximately 9 million members and is achieving high marks for cost efficiency and patient satisfaction," they write. It also limits patients' choice severely, just to Kaiser Permanente facilities, which all use the same electronic medical records.

When your choice of hospitals gets limited to those with high quality ratings then, all of a sudden, a limited network doesn't seem so bad at all. That's not to say this is the case with all exchange plans; it most likely is not. Rather, a narrow network isn't inherently a bad health insurance policy. It all depends on the quality of providers that end up in the narrow network, and how well they work together to deliver health care.

KLIFF NOTES: Top health policy reads from around the Web.

Lobbying talking point show insurers freaking out about re-insurance.  "A major health insurance company is gearing up to lobby hard against repeal of Obamacare’s so-called “risk corridors”— a provision of the law that Republicans deride as an 'insurer bailout'— and warning lawmakers that doing so 'will ultimately lead to a single-payer system.' BuzzFeed obtained a memo and talking points from the Blue Cross Blue Shield Association’s CEO Scott Serota that sound alarm bells over momentum for repeal of the health care law’s “risk corridors” — the program that would provide insurance companies with additional funds to cover losses should not enough healthy people enroll in health care plans." Kate Nocera in Buzzfeed

Small businesses are seeing insurance disruptions, too. "When millions of health-insurance plans were canceled last fall, the Obama administration tried to be reassuring, saying the terminations affected only the small minority of Americans who bought individual policies. But according to industry analysts, insurers and state regulators, the disruption will be far greater, potentially affecting millions of people who receive insurance through small employers by the end of 2014." Ariana Eunjung Cha in The Washington Post

Inside the Maryland exchange's failure to launch. "More than a year before Maryland launched its health insurance exchange, senior state officials failed to heed warnings that no one was ultimately accountable for the $170 million project and that the state lacked a plausible plan for how it would be ready by Oct. 1. Over the following months, as political leaders continued to proclaim that the state’s exchange would be a national model, the system went through three different project managers, the feuding between contractors hired to build the online exchange devolved into lawsuits, and key people quit, including a top information technology official because, as he would later say, the project “was a disaster waiting to happen.” Aaron C. Davis and Mary Pat Flaherty in The Washington Post.



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