Navigating the Narrows

September 25, 2014

With the rollout of Covered California, we have seen a great deal of success with enrollment exceeding expectations, and many enrollees are now enjoying new access to health services and greater financial security. However, now that more than 1.4 million individuals have enrolled in Covered California plans, many people are rightly asking, “How’s it going?” One concern that some have raised relates to the networks of some Covered California plans—sometimes referred to as “narrow” or “limited” networks.

Often insurance carriers will more tightly control the makeup of provider networks to select those who provide both high-quality and cost-efficient care. These goals are important for offering value to consumers while keeping premiums lower. Yet, many worry that this approach reduces access to necessary care. Let’s dig into a couple of these issues by exploring some innovative models that insurers are testing, and some findings from a recent study about the effect of narrow networks.

Last week, Anthem Blue Cross announced the launch of a new employer health plan called the “Vivity HMO” in Los Angeles and Orange counties, and CalPERS is the first major group to offer the plan. The plan has a fairly limited choice of providers in its network, yet it also includes some of the region’s widely known hospitals and their affiliated provider networks. The structure of the HMO involves budget and quality benchmarks for the enrolled population, with “shared savings” for the hospitals if they beat spending targets. On the other hand, Anthem and the providers will share the burden of cost overruns as well. Another very important part of Vivity is data sharing and referral coordination among practitioners and facilities. In these ways, the HMO is somewhat similar to the ACOs that the Medicare program is currently piloting across the country.

The major aim of Vivity is to create an affordable offering that is competitive with Kaiser Permanente. While we think it is very encouraging that Anthem and its contracted providers are collaborating to reduce costs, coordinate care, and increase quality, these providers are fairly new to this type of care delivery model. We’re anxious to see if it can compete with Kaiser’s established integrated delivery system.

Some observers and advocates worry that plans with smaller, more selective networks essentially prevent consumers from accessing needed care in a timely fashion. This worry is perhaps most acute in rural northern and desert areas of California where there are dire provider shortages, both in terms of number and geographic distribution, and limited plan choice.

A recent study authored by economists Jonathan Gruber and Robin McKnight suggests that narrow networks may reduce costs, while having fairly limited effects on access to care. (Of note: Gruber was one of the major architects of the Affordable Care Act.) The study takes a look at limited network plans offered to Massachusetts state employees. Interestingly, enrollees who switched to narrow network plans used more primary care services, while they used specialty, inpatient, and emergency care less. Travel distances to primary care providers were smaller in these plans, while they were larger for specialists and hospitals. The authors also noted that they did not find evidence of negative outcomes for chronically ill patients with the shifts in care patterns and travel distances.

In sum, the findings of Gruber and McKnight seem to offer hope that new plans like Vivity can provide less costly care without negative consequences on health outcomes. The increases in distances from specialists and hospitals may not be detrimental to the quality of care in certain regions of the state, but residents in other areas of the state may already be quite far from providers of needed care. So, plans with narrower networks may be a promising approach to controlling health care costs, and offering value to consumers in Covered California, but insurers and policymakers should be mindful of implementing these plans in a way that reflects the needs of consumers in different regional health care markets.