Narrow Networks

As outlined in my book, Not Rocket Surgery, An Employers Guide to Controlling the Health Care Supply Chain, one of the most important roles of an employer sponsor of a Total Control Health Plan is messaging to employees.  The fact is that the cost of health insurance is rapidly approaching a tipping point where employers and their employees will no longer be able to afford it. At the same time, it looks as though the ACA employer mandate isn’t going anywhere any time soon, which will result in employers being forced to offer a benefit that employees can’t afford to use.  For that reason, and many others, change is coming to health insurance and employers who elect to do so will be able to dramatically influence the changes that occur.

One of the biggest changes that has already started is the slimming down of the provider networks associated with medical plans, and this change is likely to be one of the most disconcerting to employees.  Healthcare is incredibly personal and the doctor patient relationship is one of the most intimate any individual has. The idea of anyone disrupting that relationship is a non-starter for many people, but the likelihood of it happening in the coming years is increasing dramatically.  Therefore, as the source of insurance for 49% of Americans, employers would be well served to understand this trend, take steps to control it, and start communicating with employees about this growing reality.

Understanding the Trend:

Put simply, the reason that narrow networks are becoming more and more common is cost.  Insurance carriers are designing plans that reward participants who use lower cost/higher quality providers by providing either a higher level of benefits or lower premiums. While the strategy is sound, the execution leaves opportunities for missed opportunities if it isn’t handled correctly. The biggest opportunity for a missed opportunity is the manner in which the preferred providers are selected.  With the continued vertical integration of the health care supply chain, more and more physicians are becoming employed by large health systems and large health systems are either starting their own insurance carriers or are being acquired by carriers.  It is pretty self evident that carriers have a vested interest in steering patients to providers they own and vice versa. As a result, a narrow network can be a windfall for carriers and providers while not addressing the structural flaws of the network based system.  Carriers may provide the allusion of a cost reduction in lower premiums by using providers that benefit them, however the plans will continue to increase in cost at the same rate they did before the narrow network.

Take Steps to Control It:

Employers with a Total Control Health Plan, however, have the ability to build their own narrow network based upon a fully transparent model, with cost and quality being the only factors determining inclusion.  It is possible some employers may elect to build their own provider network from the ground up, but there are also off the shelf solutions available to employers that provide the transparency, quality, and competitive pricing employers are looking for.  The key is being an active participant in the process rather than outsourcing the design of the network to a player who may have conflicting interests.

Communicating with Employees:

While the timing of implementation may be up for debate for employers narrow networks are a very real and key part of a meaningful cost containment strategy.  Put simply, health insurance plans don’t, and frankly shouldn’t, include the vast majority of providers in a particular market. If they do, then an employer is using hope as the primary strategy to drive participants to the highest quality and lowest cost providers.  Unfortunately hope hasn’t been a very effective strategy. As employers consider if and when they will utilize a narrow network strategy, they would be well served starting a discussion with employees about the basics of the health care supply chain and how in it’s current structure cost will continue to inflate unchallenged.  Simple concepts employees should know about as soon as possible include:

It is possible to quantify quality in terms of outcomes for specific providers, and only the best providers should be induced in a plan.

Many providers are employed by larger health systems and they have a financial interest and/or a requirement to refer within the system.  While a primary care physician is an integral part of developing a treatment plan, there should be an unbiased partner who has cost and quality in mind when the treatment plan is developed.

Finally, convenience comes with a price.  When the vast majority of providers are included in a network and price isn’t a variable, convenience is a logical factor to consider.  When price becomes a factor, as it does with well managed health plans, a price can be put on convenience and different decisions will likely result.

In conclusion, the shrinking of provider networks has begun and will continue to accelerate in the coming years.  Employers should begin a broader education campaign now so that employees understand why a narrow network is being implemented.  Additionally, employers must play a role in the development of their narrow networks.

Recent & Related

Interest in Health Premium Reimbursement Accounts Grows

Interest in Health Premium Reimbursement Accounts Grows

Employer adoption of specialized accounts that they fund to help reimburse employees when they buy health insurance on their own is surging in 2024. The number of employers who offer individual coverage health reimbursement accounts (ICHRAs) grew 30% in 2024 from the...

read more