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You are here: Home / Anderson On Health Insurance / Quality and narrow networks

Quality and narrow networks

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Dan Polsky and Bingxiao Wu have a new article in the journal, Health Services Research, that looked at the trade-off between network size (both hospital and physicians), hospital quality and premiums on the ACA individual market.  They are looking at the 2016 individual market.

We find the following statistically significant results: a one standard deviation increase in physician network breadth was linked to a premium increase of 2.8 percent or $101 per year; a one standard deviation increase in hospital network breadth was linked to a premium increase of 2.4 percent or $86 per year. There was no significant association between premiums and hospital network quality, as measured by hospital star ratings and the inclusion of teaching hospitals or the top‐20 hospitals nationwide.

The simpler version is that bigger networks are associated with higher premiums by $7 or $8 per month. We know that the ACA insurance markets are extremely price sensitive, as the marginal buyer is buying almost exclusively on premium. We know that broad networks are modestly valued by consumers and adversely selected.

The interesting to me finding is that big, broad hospital networks are not correlated with hospital network quality.

This was slightly surprising to me.

I would have thought that narrow networks that were primarily trying to compete on price would also be trying to leverage a narrow network to screen out individuals whose net of risk adjustment residual costs were above revenue. At least in 2016, this was not happening on a systemic basis.

Instead the take-away is that narrow networks can drive down premiums without effecting one measure of quality.

This is interesting!

Reader Interactions

4Comments

  1. 1.

    Another Scott

    Thanks for the pointer. I haven’t read it yet.

    Couldn’t another takeaway be that large organizations (broad networks) will attempt to use their size to increase costs to customers rather than increase efficiency? “We’re bigger so of course we are better and cost more.” That less competition drives up costs in healthcare, just as it does elsewhere?

    I’m happy to see my gut feeling confirmed yet again! ;-)

    Thanks.

    Cheers,
    Scott.

  2. 2.

    Barbara

    1.  We don’t have tools that are sufficiently accurate or targeted to measure quality.
    2. When we look at premium increases as the endpoint of broader networks, but view quality by reference to other kinds of benchmarks (like stars) we could be missing one very salient factor that leads to excessive utilization, which is adverse events and complications rather than the per unit cost of services.  So “higher cost” might actually be a symptom of poorer or at least no better quality.
    3. Doctors at every level of the medical hierarchy receive virtually the same training.  By all rights, there should be no incompetent doctors.  Of course, there are, but the point is, when your standards are as high as ours, it should not be a front line concern.
    4. In addition to the issue of complications, readmissions, and so forth, higher costs associated with health care services are almost never a function of better quality but greater market power, without regard to underlying quality through some kind of objective measure.​​
  3. 3.

    Kineslaw

    One issue I’ve run into with narrow networks is they also tend to have narrow formularies.  Out of the 50+ plans offered by 4 or 5 insurers here, the BCBS plans are the only ones that cover Trujeo, for example.

  4. 4.

    Kent

    Not exactly an apples to apples comparison.  But my family uses Kaiser Permanente here on the west coast which is pretty much the definition of a narrow network.  And the quality of care has been excellent.  The fact that only two of the 10+ hospitals and clinic networks here in the Portland metro area are “in-network” is irrelevant.  The care we get from the Kaiser network is excellent

    But obviously HMOs are kind of a different animal.

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