Narrow networks can effectively control health costs, report finds
The study authors analyzed hospital network and reimbursement rates for Blue Shield HMO plans in California and found average hospital payments are about 12% lower for a narrow network compared to a complete network.
The researchers found that narrow networks usually lead to lower negotiated hospital rates, though they acknowledged that excluding hospitals in narrow plans may harm patients who live near those facilities. The report added that regulating narrow networks results in higher prices and premiums.
Narrow networks are common in the Affordable Care Act exchanges and Medicare Advantage and payers in these markets have found financial success in controlling costs.
A recent Health Affairs study reported that ACA plans with narrow networks charged nearly 7% lower premiums compared to broader network plans. In another study, individual ACA silver plans with narrow provider networks were 16% cheaper for patients.
Despite potential savings, that benefit design isn't as common in employer-sponsored health insurance. HMOs make up 16% of employer-sponsored health insurance plans. That's a distant third after PPOs and high-deductible health plans.
One argument against narrow networks is that employers don't want to restrict healthcare access for employees who want to have more choices for doctors and hospitals they can visit.
Still, employers and payers are always looking for new ways to contain costs. Narrow networks like HMOs could become a better alternative than increasing member out-of-pocket costs and deductibles.
Overall, employer-sponsored health insurance is in better shape than a decade ago. Back in the 2000s, double-digit premium increases were expected. Now, annual premium increases are in the 4-5% range.
Payers have found other ways to contain costs, including higher deductibles, pre-authorization and value-based contracting.
While payers and employers have found ways to contain costs, the percentage of private-sector employers offering health benefits increased in 2017 for the first time in a decade. Nevertheless, health costs remain a major concern for employers, particularly small businesses.
- American Economic Association Equilibrium Provider Networks: Bargaining and Exclusion in Health Care Markets