2 Main Approaches to Narrow Provider Networks

Looking to appeal to consumers with lower premium prices, some health insurers selling policies through the Patient Protection and Affordable Care Act health insurance exchanges are turning to narrow provider networks.

Narrow network health plans could be cause for concern for higher-price hospitals. A Health Affairs study published last month found high-priced hospitals don't necessarily provide higher quality care than their lower-priced counterparts, meaning insurers could shut them out of narrow networks without necessarily decreasing enrollees' access to the best care. However, the study also noted high-priced hospitals generally have the best reputations, and creating narrow networks that exclude them would likely displease health plan enrollees and physicians.

Health insurers looking to compete on premiums by lowering their unit cost (what a health insurance company pays to a provider for services) through limited networks can take one of two main approaches, according to a Health Affairs blog post by David Cusano, JD, a senior research fellow at Georgetown University's Health Policy Institute, and Amy Thomas, a research associate at GU's Health Policy Institute.

1. Include only low-price providers. Health insurers can limit costs through narrow networks by identifying the lowest-cost providers and including only them in the network. This approach would work best for health insurers that are just focused on lowering their unit cost, according to the blog post.

2. Establish rebates linked to the medical loss ratio. Alternately, insurers could give incentive payments to providers that meet certain quality metrics and help the insurer achieve the federally required medical loss ratio threshold of 80 percent. This strategy would allow insurers to both hold down unit cost and improve the quality of care received by health plan enrollees.

Overall, narrow networks could either effectively contain costs and improve quality or limit consumers' choices of and access to providers. It's important for stakeholders to monitor these networks, according to Mr. Cusano and Ms. Thomas.

More Articles on Narrow Networks:
Narrow Networks Put Hospitals on the Offensive  
Study: High-Price Doesn't Mean High-Quality for Hospitals
The Rise of Narrow Networks and What it Means for Hospitals

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