Variations on traditional HMO and PPO provider networks are helping consumers and employers save money while also providing access to quality health care.
When consumers consider what health plan is right for them, they want to know what doctors and hospitals will be available when they and their family members seek care – and at what cost.
The answer isn’t simply the network with the biggest number of providers. As health care costs continue to rise at a rate that outpaces wage and economic growth, variations on traditional HMO and PPO provider networks are helping consumers and employers save money while also providing access to quality care.
Plans with selective networks of providers have become popular with consumers who purchase their own coverage if they don’t get health insurance through their employer. People choosing coverage on their own are often drawn to plans with the lowest premiums, and insurers may be able to provide lower premiums when they contract with a smaller set of doctors and hospitals.
These selective networks — often called narrow networks — are sometimes the subject of negative media coverage, in most cases involving a high-cost provider excluded from participating. But research suggests many consumers actually value lower premiums over bigger networks. “A small network with a high-quality system was far more coveted than other networks with a broader array of choices,” two health care consultants wrote in the Harvard Business Review.
When structured properly, experts say selective networks may help reduce costs while maintaining quality care.
We could eliminate enormous waste from the system.
The adoption of alternative network designs, combined with tools that empower consumers to make informed decisions about their care, could have a profound impact on health care costs, says Tom Meier, vice president of market solutions for Blue Cross and Blue Shield Plans in Illinois, Montana, New Mexico, Oklahoma and Texas. “We could eliminate enormous waste from the system simply by encouraging consumers to become better stewards of their health and to shop for care that is priced appropriately.”
In 2016, Blue Cross and Blue Shield of Montana launched a selective-network Point of Service HMO plan in the retail marketplace, where individuals and families without group coverage go to buy their own health insurance.
Like an HMO, the plan requires participants to select an in-network primary care provider, and therefore allows health care providers to manage patients’ care more effectively. However, it also allows members to access the broad Montana PPO if they choose to. That’s particularly important in rural states such as Montana.
Enrollees pay less when using the selective-network but have the option of using providers not in the network at higher out-of-pocket costs. And medically necessary care that isn’t accessible within a reasonable distance is covered at the plan’s in-network benefit level.
The state’s 1 million residents are sparsely spread over 147,000 square miles, which presents a challenge to insurers. Blue Cross and Blue Shield created its retail HMO plan to give participants broad enough access to primary, specialty and facility care near their homes at lower premiums than traditional PPO plans. The selective-network plan is currently offered in seven counties in the Missoula and Billings areas.
In the Chicago area, Blue Cross and Blue Shield of Illinois teamed up with one of the state’s largest health systems to provide individuals and small businesses an HMO plan with a network that’s specific to the metropolitan area.
Members have access to 4,000 primary care physicians and specialists and 13 hospitals — including the health system’s large teaching hospitals.
The forces making selective networks popular, however, aren’t confined to the retail marketplaces where individuals purchase health insurance.
More than half of Americans under 65 get their health insurance at work, and broad PPO networks have long been a mainstay among employers.
But employers, too, are increasingly adopting and considering new types of provider networks as their benefit costs rise and employees bear higher premium contributions and out-of-pocket costs. PwC’s Health Research Institute projects that medical costs in the employer insurance market will increase 6.5 percent in 2018.
Rising rates of chronic conditions like diabetes and heart disease account for some of the growth in health care costs, but the prices providers charge for their services are a significant factor, too.
Massachusetts state workers who enrolled in their plan’s limited network spent nearly 40 percent less on medical care over three years, according to a 2014 study published in the American Economic Journal.
Although some employers are hesitant to provide workers stand-alone selective networks, a growing number are open to including such networks within a plan that also provides members the option of seeking care from a broader array of providers in exchange for higher out-of-pocket costs.
These tiered plans are structured like pharmacy benefits. The most cost-effective tier of drugs is generics, followed by brand-name drugs and non-formulary drugs. Consumers pay more as they ascend the scale.
Applying this to medical benefits, an employer typically offers a plan with three tiers of providers based on cost-effectiveness and care quality. Employees have the lowest out-of-pocket costs when they seek care from the top tier of providers. They also have the security of knowing they can use a broader array of providers in lower tiers with higher out-of-pocket costs.
Such plans “may be a valuable tool for employers that are under pressure to decrease spending,” according to a 2017 study published in the policy journal Health Affairs. The study compared two plans — tiered and conventional — available to Blue Cross and Blue Shield of Massachusetts members with group coverage. The tiered plan was associated with 5 percent lower spending per member.
Although PPOs remain the most popular choice among the nation’s workers, enrollment in them has dropped 8 percent over the last five years, according to the Kaiser Family Foundation, a nonprofit organization focusing on national health issues.
More and more workers appear to be migrating to high-deductible health plans with savings options as a way to get coverage with lower premiums. Enrollment in such plans has grown by 9 percent during the same time period, according to Kaiser.
But employers are also eager to explore other ways, including alternative network designs, to rein in costs and ensure their employees have access to quality care. That was clear in a recent survey of employers representing 3 million members of the Blue Cross and Blue Shield Plans in Illinois, Montana, New Mexico, Oklahoma and Texas. While just 15 percent of survey respondents say they are offering a tiered plan now, another 61 percent say they are considering offering such a plan.