Healthcare providers have raised alarms over narrow provider networks in the public health insurance exchanges, but Moody's Investors Service says proposed rules to open up the networks could drive health plans to drop out of the new market.
Proposed federal rules that would limit the ability of health plans to craft narrow provider networks for the PPACA exchanges would benefit some hospitals, but tighter regulation could create an unbearable level of risk for insurers, market analysts say.
In a healthcare "sector comment" released last week, Moody's Investors Service predicts that plans to limit narrow networks in 2015 would benefit rural hospitals and safety net hospitals because those facilities are the most likely to be left out of a narrow network.
"If [hospitals] are considered essential, that would protect them from being excluded from a narrow network," Moody's Senior Vice President Lisa Martin said Monday of the new rules under consideration at the federal Centers for Medicare & Medicaid Services. "[They provide] protection in terms of market share."
The Moody's sector comment singles out CMS's plan to increase the percentage of "essential community providers" included in a health plan's provider network for a public exchange: "While not mandating the inclusion of a specific provider, the proposal requires insurers offering plans on the exchanges to provide adequate access to essential providers in order to be certified as a qualified health plan. Adequate access means that 30 percent of essential community providers in the plan area must be included in the network, an increase from 20 percent under current regulations."
Moody's defines essential community providers as "safety-net hospitals, children's hospitals, and other providers that serve low-income and medically underserved individuals."
A More Stringent Review Process
CMS's proposed rule changes for provider networks include the following justification for the higher essential community provider standard: "As only one issuer submitted a justification for the 2014 benefit year as a means to satisfy the 20 percent ECP standard, we anticipate that our intended proposal of this 30 percent ECP standard for the 2015 benefit year will be a feasible standard for issuers to satisfy."
The proposed rule changes for provider networks include a more stringent review process. According to the CMS Draft 2015 Letter to Issuers released Feb. 4, the network adequacy review for 2014 relied largely on an insurer's accreditation status, state review where the state standards were at least as high as federal standards, and the collection of "network access plans."
For 2015, health plans operating on the exchanges will be required to submit a "provider list" that includes all in-network facilities. "CMS will review the collected provider list to evaluate provider networks using a 'reasonable access' review standard, and will identify networks that fail to provide access without unreasonable delay," the federal agency's proposed rule change says.
The document says CMS will focus its adequacy review on areas that "have historically raised network adequacy concerns," including hospital systems as well as primary care, mental health and oncology providers.
'Difficult to Keep Those Costs Down'
Martin said placing tighter restrictions on narrow networks would undermine one of the prime strategies health plans have employed to lower premiums and provide affordable health insurance on the new public exchanges. "When the networks are narrower, the insurance companies pay the hospitals less in exchange for a higher volume," she said, adding that lowering overall healthcare costs is a top objective of federal reform efforts. "If there are regulations that discourage narrow networks… it's going to become difficult to keep those costs down."
Steve Zaharuk, a senior vice president at Moody's assigned to follow the US health insurance market, says narrow networks are among a limit set of cost containment tools available to health plans. "They look at levers they can push to limit costs, and one way is a narrow network," he said, noting that a relatively high level of benefit coverage is mandated on the public exchanges.
Moody's makes a dire warning to regulators to not push health plans on the exchange too hard: "Forcing insurers to expand their networks will result in higher premiums to cover higher cost networks, discouraging enrollment particularly for the younger and healthier population. If the trend were to continue, these products would eventually become unsustainable and insurers would leave the exchange marketplace."
Zaharuk said health plans will react to any curtailment of narrow networks on a state-by-state and market-to-market basis. "Each market is a little bit different, so I don't think you're going to see any one trigger."
There are no penalties for health plans that choose not to participate in the public exchanges, so large companies that "have other businesses they can pursue" could be tempted to pull out if narrow networks are curbed, Zaharuk said. "At some point, it's not worth it," he said. "Each company is going to have to make a choice on this."
Big Interest in Narrow Networks
The future of narrow networks in the public exchanges and other health insurance markets was a hot topic at last week's exchange forum hosted by America's Health Insurance Plans in Washington.
Diana Dooley, secretary of California Health and Human Services as well as chairwoman of the California Health Benefit Exchange, said she was a strong advocate for narrow networks. "It has been too easy for the plans to pass the costs along, and we need to give insurers more power to negotiate," she said during one of the featured addresses of the forum.
James T. O'Connor, principal and consulting actuary in Milliman's Chicago office, told forum attendees that narrow networks have become an essential consideration for health plans setting premium rates on the public exchanges. "Networks were a key factor in setting the rates we've seen," he said of premiums reported on the exchanges for 2014.
O'Connor said narrow networks provide some exchange consumers with a valuable option. "Narrow networks may be more attractive to healthy people," he said, adding narrow networks appeal to consumers who struggle to find affordable healthcare.
If narrow networks are allowed to thrive on the public exchanges, O'Connor predicted they will become a dominant feature in the evolving US health insurance industry. "Over time, the value networks are going to win out," he said.
Christopher Cheney is the CMO editor at HealthLeaders.