HCW Benefits Blog

Contributor:
Mike Beck, Consultant
Hill, Chesson & Woody

Since the decline in popularity of managed care in the 1990s, and the shift back to Preferred Provider and/or Point of Service arrangements, the American healthcare consumer has become accustomed to unlimited access to healthcare providers.  Similarly, when deciding to change insurance carriers, most decision-makers cite network access as a top priority for choosing one insurer or network over another.  However, renewed interest in seeking faster and more-effective ways to curb soaring healthcare costs have spurred discussion of encouraging insurers to create and offer more limited-provider networks as a form of cost-containment.

The concept of limited networks operates on the premise that by offering the healthcare consumer fewer network choices, insurers could steer them to low-cost, high-quality hospitals while avoiding facilities that charge higher prices with little difference in outcome.  Over the years, many major insurers have implemented strategies of contracting with as many providers as possible to appease consumer desire for unlimited options – sometimes without an emphasis on cost or quality of these providers.   Further complicating matters is the fact that many hospital systems have gained market share via acquisitions thereby providing them leverage in contract negotiations with the respective insurers. Many experts suspect this is one reason for rapidly rising healthcare costs; which is why policy-makers are pushing for limited networks – especially in Massachusetts.

In a state where healthcare costs run up to 33% higher than the U.S. average, the need for cost controls has been particularly prevalent.  Many Massachusetts insurers who once wanted to have the most inclusive networks are now changing their approach to marketing their products to push consumers to more cost-effective and high-quality services.  In fact, the State of Massachusetts recently began offering to employees limited network options with premium costs 20% lower than the broader network choices.  Additionally, the governor is proposing legislation that would require insurance carriers to offer a limited network option to small employers within the state.

Insurers are also beginning to offer a tiered network approach sometimes in conjunction with or in lieu of a limited network.   A tiered network allows members to choose any provider or hospital but at different cost-sharing levels, usually depending on a combination of cost and quality measurements.  While the tiered network concept has been around for some time, its popularity is growing as more experts consider it a “promising development” in the race to lower healthcare costs.

Yet, wide-spread acceptance of limited and tiered network initiatives is not without its potential roadblocks.  Consumers accustomed to having unlimited choices can often be resistant to changes to their coverage – especially when it comes to removing options.  Also, while these approaches can lead consumers to more cost-effective healthcare choices, they could have an adverse effect on continuity of care, as well as the premium costs of those consumers that remain in broader insurance networks.

As healthcare reform continues to evolve both in Massachusetts and at the federal level, the need for viable cost-reduction solutions will continue to drive interest in limited provider networks.  However, the success of these approaches will depend significantly on availability and consumer acceptance, and while many insurers already offer or are preparing to offer such plans, mainstream acceptance could be a difficult road.  Regardless, if the reduction of healthcare costs is going to remain a priority, the discussion on limited networks could be front and center as a potential “next step” to resolving the issue.

For more information, please visit the following links:

• Limited Networks Touted as Next Fastest Path to Curb Health Costs
• Group Insurance Introduces Lower Cost Health Plans to Help Control Costs
• Some Health Networks Drop Elite Hospitals
• Blue Cross Eyes Limited Provider Networks
• Health Insurance Cost Control (Pioneer Institute Study)