- Economists from Harvard Business School and Northeastern University found individual ACA silver plans with narrow provider networks were 16 percent cheaper for consumers and offer payers a promising savings opportunity in the commercial market.
Narrowing physician networks for health plans created a stronger decrease in premiums than narrowing hospital networks, because of the healthcare costs associated with prescription drugs and outpatient services for commercially insured individuals, found the study published in Health Affairs.
Narrowing just one of the two types of networks - either physicians or hospitals - could still produce significant savings of between 6 and 9 percent.
If all plans offered broader provider networks, then premiums for these plans would increase by 10.8 percent, or $330 per year, the team estimated. Plans that offered broader hospital networks experienced a premium increase of 5.7, or $191 per year. An increase in both hospital and physician network breadth was linked to a premium increase of 15.7 percent, or $527 per year.
“While at first blush this result may appear surprising, given the larger size of the hospital sector, for people with commercial insurance, per capita spending on outpatient visits and medications far exceeds spending on inpatient visits,” the team said.
In 2009 before the ACA’s implementation, the CBO overestimated healthcare premium cost between 2014 and 2016 by 15 percent. The team suggested that narrow network health plans were in a catalyst in lowering expected costs, and that narrow insurance networks lowered premium subsidies by roughly $2.4 billion in 2014.
The affordability of narrow network plans may offer payers a chance to readjust fee-for-service agreements with their broad network providers. This is because these providers may have to shift their value proposition in order to compete with the low costs offered by narrow network plans, the team suggested.
“For example, the popularity of low-premium plans (associated with narrow networks) has a positive spillover effect because it places pressure on providers within all networks to offer greater value—perhaps in the form of lower reimbursement rates or cooperation in the development of innovative, cost-saving alternatives to fee-for-service reimbursement,” the team said.
The premium problem surrounding healthcare has potential to alienate low-risk consumers from broad network health plans. These plans may need to raise premiums to cover healthcare costs which may lead healthier, low-risk enrollees to find less expensive insurance options. Without these healthy and financially stable enrollees, health plans can’t maintain a balanced risk pool that lowers average costs.
“Absent perfect risk adjustment, a death spiral could result, in which broad-network plans raise premiums to cover increasing costs, causing the healthiest of their remaining enrollees to switch to less expensive plans and raising average costs even more,” the economists said.
“As this process repeats, broad-network plans could become so expensive that they are no longer offered. In fact, there are widespread reports that such plans are exiting the Marketplaces, likely to avoid costly death spirals,” they continued.
The team concluded their findings by suggesting that these narrow network plans will find their way into the group segment of the insurance market that has traditionally valued broad network plans.
“In the years ahead, regulators and employers will want to tread carefully to preserve the benefits of narrow-network plans—including the price pressure they impose on broader-network plans—while avoiding death spirals that remove broad-network plans from the set of available insurance options.”