The debate over the Affordable Care Act has persisted since its enactment in 2010, and has high visibility in the current U.S. presidential election campaign as well. Affordability and patient access to health care have been among the main issues. New research at Wharton and the University of Pennsylvania finds that narrow networks come with lower premiums. But they come with tradeoffs and unpleasant surprises such as not being able to find the right doctor in your network, or having to pay more for care, or not being able to get appointments quickly enough.
Compounding those hurdles are exits by insurers that have incurred losses in several markets. Insurers that have succeeded are those that know how best to operate in their markets, says Daniel Polsky, the study’s co-author and Wharton professor of health care management. He is also executive director of the Leonard Davis Institute of Health Economics at the University of Pennsylvania, and serves on the Congressional budget office’s panel of health advisors.
Polsky discussed the pros and cons of narrow-network health care plans and the larger changes underway in the insurance industry on the Knowledge at Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)
Following is an edited transcript of the conversation.
Knowledge at Wharton: For a lot of people, it is such a fractious debate as to whether or not the Affordable Care Act is something good, something bad and whether it should continue, regardless of whoever becomes president.
Daniel Polsky: It’s a challenging issue. The point of my research is to try to bring evidence to what can often be a very emotional debate about whether this is a good idea or a bad idea. I’m trying to look at what is working, what is not working and how to make it work better.
Specifically, my research looks at what is called the marketplace or oftentimes the exchange. When people talk of Obamacare, they’re referring to this marketplace where you can buy individual insurance in an organized way, often with a website. Each state has its own website. If you’re buying insurance on [the federal] website (healthcare.gov) and your income is below 400% of the federal poverty level, you have an opportunity to get a subsidy to buy this insurance.
The people who are trying to buy insurance on the marketplace are often lower income people. So insurance companies offering insurance on this marketplace are very sensitive to the premium because their customers are very sensitive to the premium. This has been going on since 2014.
“As some of the insurers are leaving, there’s concern that prices will start to go up.”
On November 1st there will be a new open enrollment period where people can shop for insurance. There is concern that in many markets, many insurers that used to offer insurance in the marketplace are leaving. One of the strengths of having an organized marketplace to buy insurance is that there’s competition, and that can drive prices down. As some of the insurers are leaving, there’s concern that prices [or premiums] will start to go up.
One of the things that has come up is what it takes to succeed if you’re an insurance company competing in this marketplace where everybody is sensitive to the price. What we’re seeing is the insurers that are the most successful are those that can manage a controlled and often smaller network of doctors, so that the insurance price can be lower. Those seem to be the plans that are most attractive to the people buying insurance. They’re also the plans that haven’t lost a lot of money.
Knowledge at Wharton: How many of those options are actually out there? Is it a fact that premium costs have been going up because the costs overall have been going up? Is that why we’ve seen health insurance companies getting out of this because their losses are well into the millions every year?
Polsky: Yes, premiums have been going up. If they go up on the exchange in this marketplace, they go up at the University of Pennsylvania as well. This year they will go up, and you hear news reports when you see a startling rise in the premiums that are offered. But there’s also variation. Some premiums went up a lot and are really high, but there are other issuers and other insurers that are coming into the marketplace who offer a competitive price. While some prices may be high, often the customers keep going to the lowest one. So the impact on the customers may not be as great as some of these news reports suggest.
But the fact is that prices are going up. One of the reasons they’ve gone up a lot is it was hard to get the right price at the beginning because this is brand new. Many insurers that did badly and have left the market are those that didn’t play the market right. When we’re in a private free-market system, there are winners and losers. We’re seeing this new market shake out. There are many losers that haven’t played it right. But some are playing it right and some plans are working well.
Knowledge at Wharton: It is this narrow market that you’re talking about in your research where there seems to be a decent amount of potential savings for the consumer.
Polsky: Yes. The plans that have done well are those that have a lower premium. It turns out that one of the ways you can, as an insurer, offer a plan with a lower premium is to offer a plan with a narrow network. What my research showed is that the narrower the network that is offered in a plan, the lower the premiums can be. We found a 7% savings on premiums if you’re a narrow network versus one that’s more typical in the market.
If you’re buying insurance with a subsidy, that 7% savings can look like a 20%-25% savings. So these plans become extremely attractive for customers.
Knowledge at Wharton: The savings could be a few hundred dollars over the course of a year, correct?
Polsky: Yes. In this marketplace, people often talk about the “young invincible” and that the way to make this marketplace work is to have young, healthy individuals get on the exchange. A young, healthy individual buying insurance on the exchange could save $200 or $300 [annually]. A healthy family of four could save $400 to $600 a year. For people who are older and have to buy insurance, it’s more expensive.
Knowledge at Wharton: When consumers shop for insurance, do they consider this idea of the narrow network?
Polsky: Some of the blowback from these narrow networks is that they offer a limited choice of doctors. It’s not fun to have one of these plans. One reason it’s not fun is that if you get sick and you have to choose a doctor and you have a limited choice; you might not get the doctor you wanted. You might think you’re going to a doctor that you thought was in network and you find out they’re not in the network and you have to pay more money. These are unfortunate things that shouldn’t happen. If you have one of these plans, it can be difficult to have insurance … and try to seek care.
“We found a 7% savings on premiums if you’re a narrow network versus one that’s more typical in the market.”
When you’re shopping, do you know [what type of plan] you’re buying? You might just be attracted by the fact that it’s cheaper and not know what you’re giving up. That has been a big problem. This year, in the open enrollment they’re piloting these new ways of expressing how narrow a network is. There has not been [sufficient] information. If you shop, you see the premium, you might see what the deductible is and other major characteristics of the insurance plan. But there isn’t enough information about [how narrow a network may be] when you’re shopping.
Knowledge at Wharton: Again, consumers don’t probably think about this when they go to buy insurance. They just assume that all health insurance plans have a wide range of doctors. That is just not the case. Obviously it’s a changing marketplace now.
Polsky: Yes. What I hear and some surveys bear this out, is that to the extent that a consumer is paying attention to this, they just want to know if their doctor is in the network. You can look that up. If your doctor is in the network, you say, “Okay, I’ll take it.” But the problem is that one of the reasons you buy insurance is to protect against the risk of becoming sick. You might not know the doctor you need if you get really sick. The doctor that you have a relationship with might just be your primary care doctor.
So you’re right that it’s not something people think about, which is, “Am I going to be able to see the doctor I would need to see if something very unfortunate and unforeseeable happens?” For that you have to have this more vague concept of how big the network is, and what choices you will have. [For example, you may ask,] “Is the children’s hospital in my network, because God forbid, what if something happens to my child?”
Knowledge at Wharton: Many people would also think that if they are considering a narrow plan, and they have to go to a different doctor, how quickly will they be able to see him or her? It is not just a network problem. It is seemingly a problem across health care trying to get an appointment for you or your loved ones. Does that become a concern, maybe even a greater one, with a narrow network?
Polsky: Yes, certainly. There are some challenges with that as well just in terms of getting the information to the customer. If you go to [travel website] Orbitz and you’re looking for your hotel, you know every day where the vacancies are. It’s in plain sight and you can see it for the entire city. We have yet to solve that with the health plans. But there are a number of innovative disruptors that are trying to collect that information and make it easier to find the person who has availability rather than getting into the yellow pages and the old-fashioned way of just calling and calling until you get an appointment.
Knowledge at Wharton: Will more health insurers go this way and add these options to their plans? Especially, if we’re seeing a paring down of insurance companies offering plans, is that going to be more of the norm? Also, what is the reaction from doctors in general if they were on a plan and were part of a network and they get kicked off that network? The doctors don’t want that because that’s potentially lost revenue for them.
Polsky: I wish I were good at predicting the future. But what I will say is that often we think one idea is a good idea or a bad idea, but we don’t think about the tradeoffs involved. There are challenges with narrow networks. If … I’m unemployed and I can’t get insurance, I think I would much rather have some insurance for my family if I had low income. I’d be willing to make that tradeoff between having lots of choice, like I have now, versus one where at least I can get something.
“Companies that are good at managing narrow networks are those that have succeeded.”
One of the challenges in health care is this idea of equity, which is everybody deserves health care. You can take that to the next level where everyone deserves the very best health care. Often we build the Cadillac [version of] health care for everyone, but not everyone can afford that. You either have a health system that works really well for some people and some people get nothing, or we build a health care system that has different levels where at least people can get access at various levels of health care. This offers an opportunity for people to be able to buy their own insurance and have the dignity to purchase their own plan. What they give up is a little bit of choice.
Knowledge at Wharton: From a national perspective, in working with the Congressional Budget Office, what is the concern in terms of health care moving forward? As you said, people at times are just looking to get the cheapest option they can just to have coverage. There are also many people that are going without coverage. They’re rolling the dice and saying, “Look, I’ll worry about a potential fine if it ever comes.”
Polsky: The concern at the national level right now is that the marketplace has a lot of instability. We talked about how so many insurers are leaving the market. There are serious concerns about keeping this viable in every market in the country, and making sure that there’s enough competition with enough insurers that are playing the game to make this a long-run success. The conversation is if this will stabilize or what could we do to promote stability in the marketplace.
Knowledge at Wharton: If narrower networks are the secret to this being successful going forward, then would success with a Blue Cross Blue Shield with narrower networks bring some companies … back into the health insurance race?
Polsky: Yes, for sure. We’ve seen that companies that are good at managing narrow networks are those that have succeeded. So the question is: Are these insurers that have been very good at offering insurance in other markets — like commercial markets or Medicare Advantage — [able to] adjust to come back in with a different strategy, and is it something that they will want to do? That remains to be seen.
But there certainly is room for new players. We see in many very immature and growing markets that people come in and out all the time and it’s very much part of the free-wheeling, free-market system here. There’s a greater opportunity for startups than for the big, established companies that are good at doing something else where they make all their revenue, to change their model to come back in and play this game.
“There are serious concerns about keeping [the health insurance industry] viable in every market in the country.”
Knowledge at Wharton: We are at the point in some states where you need to have that change because the idea behind this originally was to have choice. In some states you don’t have choice anymore — you’re down to one insurer. That ends up being detrimental to the entire process.
Polsky: Yes. We see a number of markets, particularly rural areas, where there’s just going to be one insurer. As a professor who grades exams for students, that’s where I would say, “You’re not going to get an A if you’re going to have just one insurer.”
Knowledge at Wharton: You may not even get a C at that point, right?
Polsky: That certainly is something that everyone would like to see changed. We need to make sure that there’s a robust set of insurers in all markets or at least in most markets.
Knowledge at Wharton: Is it your expectation that [the findings in] your study will affect the market?
Polsky: I think that narrow networks are here to stay and we need to understand the tradeoffs. There are good things about narrow networks, and this paper shows that, yes, narrow networks can provide value in the marketplace by having lower premiums on those plans. But on the other hand, there are a number of challenges with networks: You can be surprised [about doctors in your network and costs]; you don’t have all the information you need when you’re shopping; you might not be able to find a doctor, or a doctor might be far away. These are things we need to work on going forward. I hope for a more balanced, robust discussion about the pros and cons of moving forward with narrow networks and making them work better and provide value.
Knowledge at Wharton: It’s almost similar to what we’ve seen with people’s retirement savings in that pensions were so valuable over 40 or 50-years. Companies went away from that. Now, if you want to have good investments, you’re the one that has to dig in and make some of the choices, compared to the pension system where that was done almost by remote control.
Polsky: Yes, that’s a great analogy. For a lot of folks who have Medicare, it’s always going to be there. It’s an entitlement. But here’s a case where you need to make it work for yourself. There is a lot of choice and you can pick this plan or that plan. You have to be much more educated to make this style of health insurance work versus something that’s more like a Medicare plan.