Policy and Regulation News

Affordable Care Act Kindles Employer Narrow Network Plans

Senior Analyst at Decision Resources Group Jenny Kerr offered key information in an interview about how the Affordable Care Act has impacted business practices of employers.

By Vera Gruessner

- The Patient Protection and Affordable Care Act has brought major reforms and deviations for the health insurance industry as well as hospitals and clinics. Along with the healthcare field, consumers and the patient community has been affected by the provisions of the Affordable Care Act. One area that needs to receive focus, however, is the business and employer side, which has also been significantly impacted by the healthcare law.

Narrow Network Plans

Jenny Kerr, Senior Analyst at Decision Resources Group, offered more information in an exclusive interview with HealthPayerIntelligence.com about how the Affordable Care Act has impacted the business practices of employers around the nation.

HealthPayerIntelligence.com: How is the Cadillac Tax and the employer mandate already affecting employers' choices in health plans?

Jenny Kerr: “It definitely is. The Cadillac Tax was delayed for a couple of years right at the end of 2015. That’s pretty new, but throughout the year of 2015 employers have been really studying this and trying to figure out if it’s going to affect them.”

“A lot of them – I’ve seen different percentages of surveys and some of them say half – this was when it was going to implemented in 2018, half of them were going to get the tax if they didn’t change their plans. Even CalPERS, a very large purchasing group for state and local government in California and employer group that’s very good at cutting cost and have led the way in lots of different areas like ACOs and bundled payments, were surprised when they did research and found out that a couple of their plans were going to hit that Cadillac Tax threshold if they didn’t change them.”

“The main reason was due to full network. They had the same plan with the narrow network and it wouldn’t have prevented the tax penalty. They were very concerned about that and trying to figure out if they were going to have to pull the full network plan.”

“That was really interesting to me because I felt if CalPERS was going to see this tax, a lot of employers were going to see this tax. I think a lot of people were starting to realize this. Most employers were already starting to look at this and starting to change plans to either narrow networks, consumer-directed health plans or high-deductible health plans.”

“That switch has been happening and will continue to happen even though it’s now delayed. There are probably a few that are hoping that it will be completely repealed after the election. That’s probably the smaller percentage, I would think. I think a lot of employers are moving towards trying to change their plans to keep this from happening.”

“In especially private exchanges like defined contribution plans are definitely growing in the California market. Those are the main high-deductible plans and defined contribution plans growing because of the Cadillac Tax.”

HealthPayerIntelligence.com: In what ways has the Affordable Care Act impacted health insurance costs among businesses and employers?

Jenny Kerr: “It has affected all employers very differently and especially by region. Healthcare is local so premiums and costs are affected by so many things. As far as healthcare costs, in general, for employers, prices are always going up. There’s been some flowing in that but it depends on what survey you look at and it differentiates between large versus small employers.”

“In general, they are all seeing somewhat of an increase. It varies how much of that rise is dependent on all of those factors. It’s definitely all driving them towards cost-cutting measures of some sort including narrow-network plans, the private exchange, ACOs, reference-based pricing, and bundled payment arrangements that some large employers have where they specify a hospital for a surgery.”

“All of these are basically the way they’re driving towards lowering those costs. How much those costs are going up for them is definitely a factor that varies by size of employer, location, and other market factors.”

HealthPayerIntelligence.com: What are some of the most common strategies that employers are implementing to reduce rising health insurance costs?

Jenny Kerr: “Benefit plan design changes is the first one that most employers are doing as well as looking at a narrow network. In some cases, there are a lot of large employers who never would have considered this – a narrow network was totally not something they would have been interested in.”

“I was told in San Francisco – especially there where you have Silicon Valley and some of the big companies like Google that are competing for the best talent – they’re even looking at these narrow network plans now. It’s really hit everybody whereas before the San Francisco market is one that has not been interested in narrow networks at all.”

“Narrow networks and high-deductible plans are definitely what a lot of employers in 2015 were pursuing. Consumer-driven plans and HRA health savings account plans are also being sought.”

“If you get to the more innovative and larger employers who are really studying this and looking at different strategies they can implement, then you see more innovative things that they’re doing. Some of them are contracting directly with a health system for an ACO.”

“Boeing has started doing that in several markets. I was told that a health system in Orange County was planning to announce one this year with a large employer in their market. So health systems are definitely seeking this out because they are seeing it as a way to perform cost reduction. And employers are wanting it.”

“Employers are seeking this. Boeing has continued to expand their program. CalPERS has a very successful reference-based pricing initiative in California that has lower cost by setting a price for a specific surgery – in their case, it is a hip and knee replacement. What they do is they set a price – I believe, it was $30,000 – and then everyone who chooses to go to the hospital and if they don’t go to the hospital that’s on the list, they have to pay the extra amount of money.”

“It definitely drives people to the lower-cost facilities. There’s a good amount of studies that show, over time, other facilities were bringing their prices down. It shows a major impact that an employer can have where they can actually bring down healthcare prices in their community and in their state.”

“Some of the bundled payments I mentioned where large employers have arrangements where they are specifying a hospital and actually having a medical tourism relationship where they’re sending their employees to that place and that facility. They’re continuing to expand that to more and more places. They’re seeing cost savings by sending them there and having a bundled payment around the entire episode of care.”

“Those are all ways that employers are trying to cut costs. Certainly it takes a savvier and larger employers to go into some of these solutions because you have to have the data, the resources, and enough people to be able to implement things like this across health systems.”

HealthPayerIntelligence.com: Are employers who are directly contracting with accountable care organizations finding their costs decreased by leaving out payers?

Jenny Kerr: “As far as everything I’ve seen of the relationships that are direct contracting without a payer, we haven’t seen any results yet. So they’re really too new to say. I think it will take time. Boeing has said that they haven’t really seen results yet. It’s been going a year now or so, but they are really committed to it in the long haul because it really is a long-term investment.”

“If you’re focused on care and maintaining and hopefully preventing something that could become a hospital stay two years from now, you won’t see that cost savings in one year and probably they may be even seeing more money spent in the upfront stages of an ACO.”

“Time will tell. There are great results and positive results of ACOs that are employer-backed. CalPERS has many older ones in California that have shown great cost savings. These are just not direct employer to health system. They do involve the health plan. The other version without a health plan is a little bit of a new iteration and I don’t think we’ve had enough time to see what that’s going to show.”

“The other ones we’ve seen positive results from. The newer version without the health plan is a new breed and hasn’t been proven yet. What’s interesting is that, despite the fact that we don’t have results, employers and health systems all over the country want to do this. They must believe that this will show cost savings.”