Narrow Networks Cut Costs, Not Quality, Economists Say

Research on Massachusetts government workers finds no evidence that narrow network enrollment is associated with a shift towards lower quality hospitals.

A pair of Massachusetts economists has conducted research that casts narrow healthcare provider networks in a favorable light.

"In our study, the evidence suggested that narrow network plans reduced costs by both reducing the prices paid per visit and reducing the quantity of certain services, notably emergency room visits and specialist visits," Robin McKnight, an associate professor of economics at Wellesley College, said last week.

"Interestingly, enrollment in a narrow network plan led to an increase in primary care visits. So part of the way that the narrow network plans reduced costs was by shifting the site of care towards primary care, and away from more expensive settings. We examined several measures of hospital quality and found no evidence that narrow network enrollment was associated with a shift towards lower quality hospitals."

Narrow Provider Networks Set to Spread

McKnight conducted the research with Jonathan Gruber, a professor of economics at the Massachusetts Institute of Technology, an architect of Massachusetts' healthcare reform effort, and a technical advisor to the Obama administration on the Patient Protection and Affordable Care Act.

The study was funded in part by the National Institute on Aging and the National Bureau of Economic Research.

Gruber and McKnight examined the impact of the narrow network used by the Massachusetts Group Insurance Commission, which provides healthcare coverage for nearly 200,000 state workers and their dependents as well as more than 30,000 municipal employees and their dependents.

In 2012, the GIC provided a golden opportunity for the research duo when the agency gave state workers a financial incentive to join its narrow network. The incentives to switch to the narrow network were not offered to municipal employees, which created a control group for the study.

"We find that enrollees are very price sensitive in their decision to enroll in limited network plans, with the state's three-month 'premium holiday' for limited network plans leading 10 percent of eligible employees to switch to such plans. We find that those who switched spent considerably less on medical care," the economists write in "Controlling Health Care Costs Through Limited Network Insurance Plans: Evidence from Massachusetts State Employees."

After the GIC offered state workers the incentive to switch to a narrow network, Gruber and McKnight found that the level of GIC spending dropped 4.2 percent, "implying that the marginal person induced to switch plans by this incentive spent 36 percent less."

Given that Massachusetts has a relatively high density of medical facilities and a relatively high level of accessibility to quality healthcare, McKnight says more research will be necessary to gauge the impact of narrow networks across the country.

"But," she said, "I think the important point is that, in contrast to a lot of the recent rhetoric on this topic, our research suggests that narrow network plans do have the potential to generate savings without any apparent reduction in quality of care."

'Pay Less and Still Get High Quality'
Trade associations for the insurance industry and large employers say the Massachusetts research is a significant contribution to the simmering debate over the costs and benefits of narrow networks.

Brendan Buck, VP of communications for America's Health Insurance Plans, says the Massachusetts study is not the first research indicating narrow networks achieve significant healthcare cost reductions. In July, a report from the Seattle-based actuarial firm Milliman also indicates narrow networks are cost-effective, he said. "It found that [narrow networks] provide coverage options with 5% to 20% lower premiums compared to broader network plans, while placing an emphasis on quality care."

Steve Wojcik, VP of public policy at the National Business Group on Health in Washington, DC, says the Massachusetts study "is good research to show the impact of narrow networks… It's good because in healthcare, people think the more you pay, the better quality you get; but this study shows you can pay less and still get high quality."

Wojcik says the level of narrow network cost savings demonstrated in the research Gruber and McKnight conducted may be hard to achieve in other parts of the country.

In addition to Massachusetts' relatively high density of high-quality healthcare facilities, "the healthcare services are pretty expensive, too," he said.

"It's low-hanging fruit to decrease costs in a high-cost setting. You may not see the same level of cost savings in a state where healthcare costs are lower. But even in those places, when you can use more effective contracting… you are going to reduce costs and keep quality at a high level."

In a survey released last month by the NBGH, 26% of nearly 150 large employers reported offering health plans with narrow provider networks.