Narrow Networks…Healthcare Buyers Beware!

In the current, post Affordable
Care Act (ACA) world, the term – “narrow network” – is often heard, and at
times, is a strategy deployed by employers and insurers.  There are
a variety of other ways to describe narrow networks, such as – carve out
network; exclusive provider network; select network; tiered network…you get the
idea.  From a covered member’s standpoint, this strategy involves limiting
the number of contracted providers plan members can seek care from, and in return,
receive the best benefits, and lowest out of pocket costs.  From the standpoint of the insurer or employer, narrow networks mitigate risk and reduce expenses. 
Readers who have been around the healthcare
scene since the eighties might recall the original introduction of narrow networks, albeit presented at the time as “HMO Lite”;  “a
PPO/HMO hybrid”; or more commonly –  “exclusive
provider organization”, replete with its very own acronym  – EPO!  

These narrow network plans from
the eighties, lasting well into the 2000’s, sometimes included something called
a “gatekeeper”.   A gatekeeper was an
assigned or selected primary care physician, whose responsibility it was to
determine whether a patient needed to see a specialist for their particular
ailment.  And the associated health
insurance plan would provide a higher level of benefits only if this gatekeeper
referral process was adhered to.  Eventually, insurance companies figured out
the expense associated with administering the gatekeeper model was more than the
savings it delivered.  While the
gatekeeper concept went the way of the cassette tape, the idea of a smaller,
more tightly managed network of contracted providers remained.
2014 is the year the
bulk of ACA related insurance reforms was set to become effective.   In turn, we are seeing more narrow PPO
networks associated with health insurance plans offered both on and off the
public healthcare exchanges.
Since a good number of health insurance plans received delayed, or what has been termed – “grand
mothered” status – the full impact of the ACA has yet to unfold for individuals
insured by such plans.  However plans
offered on the public exchanges, and non-grand mothered plans,
were required to conform to all of the otherwise mandatory ACA provisions,
effective as plans renewed, on or after January 1, 2014.  And one of
the strategies many insurance companies  and employers chose to mitigate the risks associated
with offering plans on a guaranteed issue basis, with no preexisting condition
limits, priced at community rates, offering a minimum of 10 essential health
was…the use of narrow PPO networks.
A 2013 McKinsey study found that
70% of the public healthcare exchanges offered plans with narrow networks.  The same study
found premium savings of 26% between plans offering broad and narrow networks,
underscoring the efficacy of this cost reducing strategy.  Of great concern is that a number of the
nation’s leading hospitals are not included in many of these narrow network
plans.  For example, Mayo Clinic
in Minnesota, Cedars-Sinai in Los Angeles, and Children’s hospitals in Seattle,
Houston, and St. Louis are considered out of network on most health plans sold
on the public exchanges.
And as more “off exchange” plans are forced into full
compliance with the ACA in the coming years, it is widely anticipated that the
use of narrow networks will increase dramatically.
Narrow networks and the resultant
reduction in choice of healthcare providers, has grabbed the attention of
lawmakers at both the state and federal level.
According to the Wall Street Journal, some state legislatures are
considering bills that could force insurers to offer more hospitals and doctors
on their plans.  And federal regulators
have proposed that the review process for plans offered on
include tougher criteria pertaining to provider access and networks.  Clearly narrow networks, while reducing
healthcare costs, come with a trade-off that can be difficult to swallow.
Which brings us to the question – “what is the down side to seeking care from an out
of network provider”?  While folks tend
to focus primarily, or only, on the reduced level of health insurance benefits
associated with out of network care, there are actually several ways such
care can penalize an insured member:


  1. Higher Out of Pocket Costs – The majority of health plans nowadays provide some level of coverage both in and out of their PPO network (unlike HMO plans that often times provide NO coverage for care received out of network).  A general rule of thumb is to double, or even triple the in-network benefit levels, to arrive at the out of network exposure. For example, a plan with in-network deductible/coinsurance/out of pocket maximum respectively, equaling $1,000/90-10%/$2,500, could have out of network coverage equaling $3,000/70-30%/$7,500 respectively.
  2. Out of Pocket Maximums Accumulate Separately – And the higher out of pocket exposure/expense associated with using out-of-network providers is in addition to the out of pocket exposure/expense applicable to in-network provider use.  In other words, the in-network and out-of-network expense “buckets” within a health plan generally accumulate separately.  So if a patient receives care from both in and out-of-network providers in the same plan year, he has to satisfy two, separate out of pocket maximums in order to reach the point where the plan pays all (or 100%) of covered expenses for care provided by any provider.
  3. Balance Billing – Care provided by in-network providers is billed at pre-negotiated, contracted rates.  This means a patient cannot be billed additional charges beyond the contracted amount, which the provider is required to accept from the insurance company/administrator.  Care provided by out of network providers is neither negotiated, nor contractually binding.  Consequently, out of network providers can charge any amount they deem appropriate, which the insurance company/administrator may not agree to pay.  If the insurance payer refuses to pay the billed amount based on a standard known as “usual, reasonable, and customary”, the provider has in effect, two options: 1. Excuse the patient from having to the pay the difference; or 2. Bill the patient for the “balance of the bill” not covered by insurance.
  4. Spending Account Depletion – If a patient has a tax preferred spending account, or multiple accounts, associated with their health insurance plan, such as a Flexible Spending Account (FSA), Health Savings Account (HSA), or Health Reimbursement Arrangement (HRA), they can use funds from these accounts to pay for their out of network care.  The downside to this of course is the depletion of these accounts, leaving the patient with fewer available dollars to pay for additional care received by in network providers for the balance of the calendar year.
  5. Pre-certification Penalties – Most health insurance plans include a provision requiring the patient to contact their insurance company/administrator prior to receiving certain, generally expensive, types of care.  Examples include an overnight hospital admission, surgery, MRI, etc. In- network providers usually take care of this administrative requirement, and may even be contractually required by the health plan to carry out this duty.  If such care, which is usually specified in the health insurance certificate or summary plan description, is not pre-certified, a penalty applies to the patient.  The penalty can be either a flat dollar amount, such as $250 or $500; or a percentage of the cost of care, usually capped at some amount.   An out of network provider is not contractually obligated to perform this function, and if they fail to do so, the insurance company/administrator can impose the pre-certification penalty on the patient.
IMPORTANT: Most health insurance plans waive the out of network plan related penalties in the event of an emergency (see nos. 1, 2, and 5 above).  However, many plans stipulate that once the patient is stable, they must be transferred to an in-network provider in order to avoid penalties.So to quote the old
expression – “let the buyer beware” – when: 1. selecting a health plan; and 2.
seeking care from providers that may or may not be contracted by the health
plan.  And as more employers opt to
provide their employees with dollars rather than benefits (known as defined
contribution) to purchase their own coverage,
newly armed health insurance shoppers will need to pay close attention
to the provider network associated with the various plan options under