Feds shouldn’t man­date wider net­works

Modern Healthcare - - COMMENT - By Dr. Joel Shalowitz

The lat­est federal health­care foray in­volves con­trol of provider net­work size. While hor­ror sto­ries abound about pa­tients be­ing cut off from long-stand­ing clin­i­cian re­la­tion­ships be­cause they had to switch to an ex­change plan, in­dis­crim­i­nately man­dat­ing wider net­works will not solve the prob­lem.

First, some back­ground about this sec­tor. Four con­di­tions are nec­es­sary for a vi­able in­sur­ance mar­ket: fi­nan­cial risk must be mea­sur­able; losses must not oc­cur too fre­quently or too rarely; losses must oc­cur ran­domly (out of the in­di­vid­ual’s con­trol); and large num­bers of people must be avail­able to pay pre­mi­ums. Health plans tra­di­tion­ally com­pete on four fea­tures: ben­e­fits, pre­mi­ums, out-of­pocket ex­penses and size of provider net­work. At one ex­treme are fee-forser­vice plans with high pre­mi­ums and com­pletely open net­works, and at the other, HMOs with lower pre­mi­ums and out-of-pocket ex­penses, but a much more re­stricted net­work.

The Pa­tient Pro­tec­tion and Af­ford­able Care Act has dis­torted the mar­ket in four ways: the de­mo­graphic mix of en­rollees is not as pre­dicted (e.g., fewer younger people have signed up), mak­ing ex­pense mea­sure­ment less ac­cu­rate; de­layed en­force­ment or lack of a sub­stan­tial penalty for non-en­roll­ment has taken away the ran­dom­ness of the pop­u­la­tion that signs up; in­cen­tives en­cour­age sicker people to join more of­ten than health­ier ones; and the re­moval of pre-ex­ist­ing con­di­tions as a rea­son for cov­er­age de­nial al­lows sicker people to en­roll. These changes are not bad (par­tic­u­larly the last one), but they do al­ter mar­ket char­ac­ter­is­tics.

Given these al­ter­ations, in­sur­ance com­pa­nies need a re­vised port­fo­lio of ac­tions to main­tain a sus­tain­able mar­ket­place. How­ever, the ACA has taken away this flex­i­bil­ity in sev­eral ways. Ben­e­fits are man­dated; pre­mi­ums are closely scru­ti­nized, if not out­right reg­u­lated; and out-of-pocket ex­penses are also con­trolled.

The only tool that re­mains to ad­dress these dis­tor­tions is lim­it­ing net­works. This lim­i­ta­tion helps hold down costs by al­low­ing com­pa­nies to ne­go­ti­ate more fa­vor­able rates and con­trol the vol­ume of waste built into fee-for-ser­vice in­cen­tives. An­other ben­e­fit of driv­ing vol­ume to se­lect providers is en­hanced qual­ity.

Since the federal govern­ment cre­ated these mar­ket­place con­di­tions, it should en­sure that an ad­e­quate provider net­work ex­ists with re­spect to qual­ity and cov­er­age of man­dated ben­e­fits. But net­works that in­clude a need­less va­ri­ety and num­ber of providers will, at worst, de­stroy the pri­vate in­sur­ance mar­ket, and at best, make in­sur­ance even more costly for those who need it the most.

Dr. Joel Shalowitz is a clin­i­cal pro­fes­sor and di­rec­tor of the health in­dus­try man­age­ment pro­gram at North­west­ern Univer­sity’s Kel­logg School of Man­age­ment.

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