By Elizabeth Kay

Focused provider networks (aka skinny or narrow) are nothing new to the health insurance marketplace.  Insurance carriers have been using different sized provider networks in their HMO and PPO portfolios for many years now.

The concept is familiar to most of us.  If you offer a smaller provider network, you can offer the same plan at lower premiums than the plan offered with a carrier’s full HMO or PPO network.

The question is, how effective are they in reducing, or maintaining lower premiums?

In order for the insurance concept to work so that people pay as little in premiums as they can, you have to get as many people as possible to participate.  That way, when there are claims, the more people who are paying premiums translates into lower premiums for everyone who is participating.  It’s simple division; right?  A $10,000 claim divided among 100 people is $100/person vs. $50/person when the same claim is averaged among 200 people.

So, with insurance premiums on the rise up to 182% from 1999 to 2013 compared to inflation at 40% over that same time period*, how are the insurance carriers going to get people to participate in the marketplace exchanges so that health care reform can be successful?

Well, they have to start by making it affordable.  How did they do that?  Well, they increased the maximum out of pocket to the maximum allowed under the Patient Protection and Affordable Care Act (PPACA), reduced the network sizes, and gave the participating providers in the smaller networks a pay cut.

In February of this year, I watched a panel of experts discuss the state of the marketplace exchanges at an industry conference in Orlando, Florida.  One panelist made a comment stating that he felt the marketplace plans with the focused networks were going to essentially “blow up.”  He felt the narrow network strategy to keep lower premiums was going to backfire.

He cited that the participating providers were potentially of lower caliber than those that chose not to participate because they knew that they could not provide their standard quality of care for the lower rate of pay.  He believed that we were going to see more re-admissions to hospitals for patients who were either sent home too soon, or who suffered a relapse, secondary infection, etc. Doctors may be more inclined to see as many patients as possible, so they may not spend the time needed with each patient, and misdiagnose, or miss things altogether that could otherwise have been caught early, or even prevented entirely.

If we see a rise in claims due to re-admissions, and other factors cited above, the insurance carriers will have to increase the premiums for the next year in order to cover their losses if they did not collect enough premiums the previous year, and adjust the rates to cover the cost of projected claims for the next year based on the new data they have collected from 2014.  What do we think those increases will be – 5%, 10%, 25%?

In May, I had the opportunity to ask an executive at Blue Shield of California what he thought about this statement made by the panelist.  I asked him if he felt they would see higher utilization than expected on these ‘focused’ networks due to the quality of the participating providers.  He got a little uncomfortable in his chair (whether because he did not like the question, or because he had not been asked it previously, I’m not sure), paused and then said that he did not know.  He said they did not have enough claims data at that time to really be able to give an answer.

A major insurance carrier mentioned at the UBA 2014 Fall Meeting & Expo in Rosemont, Illinois, that they had to submit rates to governing bodies for January 1, 2015, before the end of the second quarter of 2014, before they had most of their new enrollments from the first open enrollment period under PPACA and the marketplace exchanges processed.  This means that they had to submit rates based on projections and not actual claims data from 2014.  Therefore, they may not know if the narrow network strategy will indeed backfire for at least another year or more.

Some carriers have stated they have seen a higher utilization in the smaller networks this year, mostly due to the newly insured population.  One of those carriers reported that the population using the smaller networks  also require more administrative time for carriers to educate insureds about the plans and how to use to use the plans.

This makes me wonder how long the providers in the narrow networks will be able to keep up with the demand and the cost of seeing numerous patients for lower payments from the insurance carriers.  It costs the provider time/money for their staff to submit claims to the carrier for payment.  If they have a higher volume of patients, that means a higher administrative burden on the provider.  Will they be able to keep their costs under control with the current pay rates from the carriers?  Will they be able to maintain the current contract, or will they have to re-negotiate, or pull their contract altogether?

Another issue that we have been facing with the ‘focused’ provider networks is that most of the carriers did not have a handle on accurate provider network listings when the marketplaces opened.  In fact, Covered California had to take down their provider search tool from their site completely because it was not accurate and people were enrolling in plans in which their current providers could not accept.

There were many cases where individuals have been going to see their providers, only to be turned away saying that they do not accept that plan.  Once this has been discovered, some individuals have been able to change plans under the “qualifying life events” outside of the open enrollment period, according to Tracy Seipel, a reporter at the San Jose Mercury News.

While this is great for those who have discovered their current providers are not in-network due to a routine office visit, it might not be so easy for those who have to seek services due to an emergency.  While a claim in the emergency room due to a possible loss of life or limb will be covered as an in-network benefit at any provider, thanks to PPACA legislation, it does not mean that a subsequent in-patient hospital stay at the same facility will be covered.

Now that we are in September, and are coming up to the open enrollment period, I find myself wondering; did it work?  Are we going to see more people leave the marketplace exchanges in January when their renewal premiums skyrocket?  Or will they be able to maintain close to the current rates?

I guess we may have to wait another few weeks, or until open enrollment in 2016, to find out how the “focused” provider networks will impact premiums.

To benchmark your plan design and costs with other employers of your size, geography and industry, request a custom benchmarking report from your local UBA Partner firm.

*Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2013.  Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), 1999-2013; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, 1999-2013 (April to April).

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