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The idea of narrow networks — health insurance plans that limit enrollees to a small set of doctors — is not a concept that's especially popular with consumers. Who wants a health insurance plan, after all, that tells you your favorite doctor is one it won't cover?
Narrow networks are common on Obamacare's new exchanges, as health insurers try to hold down premium prices by contracting with fewer doctors. McKinsey and Co. estimates that more than a third of the plans sold on the new marketplaces left out 70 percent of the region's large hospitals. This unsurprisingly led to a barrage of negative headlines about insurers leaving well-known hospitals out of network.
But narrow networks aren't all bad. Health economists actually tend to be quite fond of these products, as they help hold down spending. The potential for savings is big: limited choice plans can reduce patient spending by as much as a third, new research from economists Jon Gruber and Robin McKnight finds.
Using a natural experiment from Massachusetts, Gruber and McKnight find that patients who switched to narrow network plans had access to a smaller set of equally good hospitals. They used more primary care but went to the emergency room less. And these patients, along with their employers, ended up saving a whole bunch of money.
Massachusetts created an unexpected experiment
Narrow network plans seem to have become more common under Obamacare, but the health reform law didn't create them. For decades, health plans have experimented with contracting with a small group of doctors to get a better price. There are some insurers who do this and have great reputations, like Kaiser Permanente.
Gruber and McKnight's research takes advantage of a natural experiment that happened in Massachusetts three years ago. Back then, the state gave some employees a big financial incentive to switch to narrow network plans: three months of free premiums. The researchers could look at the two groups from 2010, before the switch, up through a year after the change in 2012. Here's what they found.
1) With the three-month premium holiday, lots of people switched to the narrow network plan. Massachusetts already offered narrow network plans prior to 2011. But the financial incentive made a big difference: there was an 11 percentage point increase in the number of employees picking the narrow option when the financial incentive got bigger.
2) Health spending fell by one-third for those who switched. This was dramatic: Gruber and McKnight estimate that, on average, those who jumped to the narrow plans spent 36 percent less on health care.
The drivers of this change were twofold. Patients on the narrow plans used less medical care (a bit more on why is below). And when they did go to the doctor, it was usually with a provider who charged lower prices. This is a hallmark of narrow networks: to keep premiums down, they tend to only contract with physicians who will give them a good deal.
3) Patients used more primary care — and got fewer specialty services. Patients who switched to the narrow network plans spent 28 percent more on trips to primary care doctors — but 45 percent less on specialty care. They went to the emergency room less and got fewer x-rays and scans.
Separate data in the study suggests that travel distances might explain this flip. Patients' were about a half-mile closer to their primary-care doctor than they had been under the broader plan, suggesting this particular narrow network plan may have gone heavy on primary care. While urgent care clinics and emergency room travel didn't change, trips to the hospital became much longer, by as much as 40 miles.
4) The narrow network hospitals provided just as good care. This is always a big concern with narrow networks: the health insurer picks the cheapest hospitals, which are in turn the worst hospitals, and patients end up getting worse care.
At least in the Massachusetts example, this wasn't the case. Gruber and McKnight look at a typical panel of health indicators, like how many heart attack patients die within a month and re-admission rates where the hospital messed up the first time.
They find that hospitals in and outside of the narrow plans look pretty similar; there's no significant difference in quality. "Enrollment in limited network plans is not associated with any change in the quality of accessible inpatient hospital care," Gruber and McKnight conclude.
Gruber and McKnight were unable in this particular study to look at the health outcomes of patients — to explore whether limited network enrollees fared better, worse, or the same in the care of a smaller handful of providers.
Good news for Massachusetts, but just one example
Reducing patient spending by one-third is no small feat for a health insurance plan — especially when it's doing so without cutting high-quality hospitals out of the network.
While Massachusetts' experiment shows the potential of limited network plans, it doesn't suggest that every foray into limited choice will go equally as well. It's easy to see some health insurance plans that do cut top-performing hospitals from their network or don't see the big increase in primary care use.
It's probably most fair to read this study as a proof of concept: set up correctly, limited choice plans can save money without sacrificing quality. Whether all plans work this way is something we'll learn more about, as more people on Obamacare keep enrolling in these products.
