Narrow networks, good and bad

Over the past six months or so it has become increasingly obvious that private health plans are using the advent of Obamacare to limit their offerings to narrow networks. These networks are cheaper for the health plan and can be sold at competitive rates to employers, making them quite profitable to the plans. Increasingly this narrow network strategy is the preferred method of launching a product on the new Obamacare health insurance marketplaces.

Tellingly, narrow networks systematically eliminate the high profile, high brand aware institutions that have historically demanded the highest rates from health plans. We’ve seen examples over and over again where health plans have offered to sign such institutions but for deep discounts. The leading institutions reject anything other than a token discount. This is a predictable theatrical exchange on both parties parts. Neither one really wants to enter into a relationship of this type.

As a result the employer can offer insured employees a cheaper alternative based on the limited network of options of both physicians and hospitals to choose from. As health-care costs continue to grow, or at least are perceived to, employees welcome lower-cost alternatives even if it means less choice. The challenge of using a narrow network is obvious. Consumers have fewer physicians spread over unfamiliar geography and second-tier hospitals when they really need them.

Narrow networks being sold in the new online marketplaces face even greater capacity pressure as actuaries project utilization rates among the newly insured will be 116% of those previously insured. Finding a doctor close to home or close to work in such narrow networks will become a major challenge in 2014.

Would the narrow network strategy by health plans have happened anyway without the advent of Obamacare? Perhaps, but health care reform has given health plans a real jolt. They faced extinction and then severe limitations that were ultimately written into The Patient Protection and Affordable Care Act. It seems the narrow network is really a reaction to some of those limitations on their ability to pursue the traditional business model of health plans. But these are big, smart, resourceful organizations who have found a new way to survive in the new world of healthcare reform. Narrow networks are simply one of those tools to their survival.


Author Neil Godbey is President of The Godbey Group, Irving, Texas. Since 1999 The Godbey Group had been helping leading hospitals and healthcare systems negotiate favorable managed care and value-based contracts that help sustain those organizations’ mission of improving the healthcare of the communities they serve.