Beware of Swinging Pendulums

How does your employer choose a health insurance carrier?

Rates?  Selection of doctors in the network?  Programs for wellness and disease management?  The carrier’s ability to control costs and offer a stable rate or fee year over year?  The plan’s creative ways to manage costs?

It is likely a combination of many factors including those listed above that dictates how an insurance company is selected.

Health plans compete with one another on similar points. How big is the provider network? How are they able to come up with creative solutions to drive cost savings which results in reasonable year-over-year rates/fees?

One thing is for certain: controlling costs is paramount.  No one wants to see 10%-12% increases every year.  It’s a sad state of affairs when an 8% increase upon renewal brings a sigh of relief for some employers.

Thus the insurance carrier’s ability to cost controls is of utmost importance to secure new members.

Carriers help control costs in a number of ways such as claims analysis to identify cost drivers, disease management and wellness programs, utilization review and increasing the size of their provider network.

Yes, the size of the network helps control costs.  Here’s how: the insurance company negotiates favorable (typically lower) rates with providers to be part of their network. Those negotiated discounts drive savings for the employer when their employees see the in-network “discounted” providers – each visit costs less than if the employee were to visit an out-of-network provider.  The deeper the network, the more likely it is that the members choose in-network providers, thus a deeper discounted rate is achieved which keeps costs down.

The size of the network also reduces “disruption” when an employer changes insurance carriers – the disruption being whether or not employees have to choose a new hospital and/or doctor because the new carrier’s network is different from the previous carrier’s network.  The larger the network, the more choice of providers which increases the likelihood of an employee’s current doctor being part of the new insurance carrier’s network, thus minimizing disruption.

In summary, the size of an insurance carrier’s network has two key marketing points:

-It allows a member to choose from a large group of hospitals and doctors

-It drives cost savings through negotiated discounts which results in lower costs.

From a member/patient perspective: more choice, less cost.

What we’re seeing today is an interesting trend away from some of the key factors on which health plans have competed in the past.  This is not to say that network size is no longer a key point or a determining factor or that discounts aren’t important, but the choice and pricing aspect of this is changing.  From a member/patient perspective, the pendulum appears to be swinging the other way.

Health insurance carriers have created (perhaps resurrected is a better term) something called tiered networks, also referred to as “limited” networks.  It is a way for carriers to control costs by “tiering” providers based upon their costs and, in some cases, quality.

If you are a low cost, high quality provider the health plan places you in the best tier (lower member out-of-pocket costs/co-pay) thus driving more members to see you.  If you are a high cost provider members will still be able to choose you, but it will cost the member more as you will be placed into a higher tier (higher member out-of-pocket cost/co-pay).

Tiered networks don’t eliminate member choice, but makes it a matter of “you want it, you pay for it”.  This tactic was typically a phenomenon seen only with out-of-network, non-discounted providers in PPO plans.

Therefore the growth of tiered network products appears to have a number of pendulum-swinging effects:

1) Choice is adversely impacted – if an employee enrolled in a tiered network plan wants to go to a higher-tiered hospital or provider, they’ll have to decide if the added cost is worth it.  And the data to help the member decide if its worth it may not be readily available.

(I argue that the term “less” choice applies because of the impact to member choice – if you are on a fixed income and can’t afford to continue seeing their doctor for the past 10 years because they’ve been placed in a higher tier, you have less choice).

2) Out-of-pocket cost is adversely impacted – there is an additional member cost to see a higher tiered provider whereas before it was typically the same cost no matter which in-network provider you saw.

From a member/patient perspective:  Less choice, more cost.

Suffice it to say beware of swinging pendulums.

Let me state that I see the value of tiered networks.  I support the general goal: control costs and increase quality.  Tiered networks have developed out of necessity due to rising healthcare costs. As a country, we have to become smarter consumers of healthcare.  I feel tiered networks will push us to become smarter consumers of healthcare.  And that is a good thing.

My point is this:  lower cost and increased quality does not come without sacrifice.  And the latest casualty appears to be choice and cost for members/patients.

The question becomes – can we have it all?   Can we have choice with cost controls and increased quality?  The answer, at least for now, is likely no.  If you want choice you can have it, but you have to pay more for it.

Now if you’ll excuse me, I need to tell my PCP that it’s time to increase quality, lower costs, and improve outcomes because I don’t want any disruption.

5 thoughts on “Beware of Swinging Pendulums

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