Health insurance companies are narrowing networks and cutting access to pricey specialists to boost profits and keep Americans attracted to low cost plans offered under the Affordable Care Act.
Narrow network strategies might not always be good for consumers who are limited to fewer doctor and hospital choices when they get sick, but they are good for investors and key health insurance exchange players such as Anthem, Aetna, Cigna, Humana, and UnitedHealth Group.
The narrow network strategy might be of particular benefit to Aetna and Anthem as they attempt to grow through acquisition and become more competitive with Blue Cross and Blue Shield plans that tend to be more dominant in the individual insurance policy business.
All of these commercial plans are seeing increasing business from buyers of individual policies and small group plans offered on the public exchanges under the Affordable Care Act, which is better known as Obamacare. The trick for these evolving companies, though, is to manage the risk pool and keep a lid on expenses so there's money left over for a profit.
Narrow networks mean reducing high-cost doctors
A new analysis by Washington policy and research firm Avalere Health shows the average medical care provider network for plans offered on health insurance exchanges in 2015 under Obamacare includes one-third fewer doctors and hospitals than commercial plans offered outside the government-run marketplaces.
"Plans continue to test new benefit designs in the exchange market," said Dan Mendelson, CEO at Avalere. "Given the new requirements put in place by the ACA, network design is one way plans can drive value-based care and keep premiums low."
Health plans have to watch their networks closely because plans offered on the exchanges have to comply with the law's so-called medical loss ratios, or MLRs. Under the law's MLR requirements, individual policies and small-group insurance products sold to businesses with 49 or fewer workers generally have to spend 80% of health plan enrollee premiums on medical costs. Policies for groups with more than 50 workers have to spend at least 85% of health plan subscriber premiums on health costs.
The Avalere report showed exchange plan networks included 42 percent fewer oncologists and cardiologists and 24 percent fewer hospitals than last year. Services provided by specialists tend to be more expensive, and certain hospitals can be more expensive. "Insurance carriers offering on the exchange are under tremendous pressure to keep premiums low," Elizabeth Carpenter, vice president of Avalere Health, said in an interview.
Consumers drawn to silver plans
The most popular health-plan choice for Americans buying coverage on the exchanges is the second-lowest-cost "silver" tier among the so-called "metals." Platinum and gold plans are more expensive, with bronze plans priced lower than silver ones.
"Exchange consumers are favoring lower-cost metal levels, and more specifically, the low premium plans within those metal levels," Carpenter said. "The majority of consumers in 2014 picked a silver plan -- of those, two-thirds picked the lowest or second lowest cost option. Network design is one way that plans can offer consumers lower monthly premiums."
Interestingly, a McKinsey study earlier this year found that median premium for plans purchased on exchanges are 10 percent higher in networks that include an academic medical center. Such hospitals are more expensive than their community hospital counterparts because academic centers also conduct research, and a patient's bill also includes the expense of educating residents and other doctors-in-training.
As health insurers continue to report earnings in the coming weeks, watch for them to make increased profits on public exchanges as they narrow networks to keep expenses in line and plans affordable for uninsured Americans.