As rising healthcare costs eat into many organizations' bottom lines, it’s increasingly difficult for employers to offer the same benefit plans they did last year without making some trade-off. That’s why employers are increasingly turning to narrow networks — in which health plans, or others offering narrow network products, start by cutting out the most expensive or poorest performing providers. Note that providers are often willing to negotiate lower rates to remain in-network to maintain patient volume.
By funneling members to a limited pool of high quality, low cost providers, health plans are able to offer lower premiums. In 2016, premiums for narrow networks were 22% lower than broad network offerings. Best of all, results to date show there are no discernible adverse effects on health outcomes.
This may be why the use of narrow networks is on the rise. Fifteen percent of employers are currently using them and 36% of employers are seeking to implement narrow networks over the next two years. Clearly, there is money on the table in the form of cost savings for employers open to these strategies.
But not so fast. Before brokers advise clients to put their broad provider network on the chopping block, they should ask these four questions:
1) What do employees care about when selecting benefits? There is still a widespread perception that Americans care most about choice in healthcare, which makes a narrow network unappealing. However, a 2013 survey of Americans suggests that’s not the case. Sixty-five percent of respondents prioritized cost and affordability when selecting a plan, while only 35% care about which doctors are in their network. Do you know what is most important to your clients' employee population? Are the employees price sensitive? Do they have expectations of broad choice or have you taken steps to transition?
2) How does a health plan determine who is in or out of the network? The value proposition of a narrow network falls apart if employers are forced to compromise on quality of care. Unfortunately, despite the promise of a “high-performing” network (as many narrow network products are dubbed), most health plans only focus on price when creating narrow networks. Some health plans and independent vendors take steps to evaluate the quality of the providers in their narrow network. Do you know what selection criteria your health plan is using? It’s probably time to ask.
3) Does a narrow network strategy make sense in the region where you operate? Narrow networks make the biggest impact when there is large variation in quality and price among providers in a region. If all hospitals in your network charge the same amount, you won’t save much by removing one from your network. Market dynamics can make all the difference when predicting whether a narrower network will save you money. Is there wide variation in your market? Don’t forget that cutting an expensive hospital or provider out of your network is one way to send a signal and increase competition.
4) If you decide to offer a narrow network, are you prepared to educate your employees about it? The difference between success and failure can be in helping employees understand the trade-offs in opting into a narrow network. We’ve heard success stories from employers who explained the importance of narrowing the network to employees by being honest about company pressures to cut costs and avoid lay-offs. Other employers have jumped through hoops to offer a narrow network product but found their employees either didn’t understand the offering or perceived it negatively. Employers won’t reap the benefits from a narrow network product if employees don’t enroll in it. Do you have the communications infrastructure to educate clients and their employees about the tradeoffs? Do your clients have the flexibility to create financial incentives for employees to select the narrow network plan?
Disquietingly few strategies really help employers contain healthcare costs these days. Given that Americans are more open to trading off choice for affordability, and there are more health plans and other vendors at the ready to help employers implement narrow networks, we are likely to see more of these. It’s time to start asking yourself and your vendors if this strategy is right for your clients' companies.
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