Insurers Limit Consumer Choice To Reduce Costs

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Squeezed between Obamacare's twin goals of containing health care costs and upgrading medical benefits, insurance companies are squeezing back.

Welcome to the "skinny" medical provider network.

The insurers say they are pressured to keep premiums in check but have been left with fewer tools to do it. Health plans that applied to sell their wares in Covered California, the state-run insurance exchange, competed largely on price.

But at the same time, they're required to provide standardized benefits that not everybody needs or wants, including things like prenatal care, pediatric services and treatment for substance abuse. That tends to raise premiums.

One of the few effective ways to reconcile these countervailing demands, insurers say, is to eliminate higher-cost hospitals and doctors. As a result, consumers are getting thinner pickings, but at lower prices.

These slimmed-down medical directories are a subject of increasing concern to consumer advocates, state officials, physician groups and insurance agents, who worry that the narrower spectrum of choice could exacerbate a doctor shortage already looming in some parts of California.

The health plans argue that in a world of shrinking reimbursement for medical care, doctors and hospitals must find ways to cut their own costs so that they can survive on lower payments. They say that the millions of newly insured flooding into public exchanges will generally be lower- to middle-income people whose first concern is going to be price.

"You can't sell a Lamborghini to someone who is making the minimum wage," Paul Markovich, CEO of Blue Shield of California, said at an industry conference in Huntington Beach late last month. "You have to get real about that. How do you make health care affordable for that population?"

Blue Shield's exchange-based PPOs, which are the same as the ones it is selling to individuals and families outside of Covered California, have about 75 percent of the hospitals and half of the doctors that are in its regular commercial PPO network.

Health Net, which accounts for about 4 percent of the individual and family market, has the lowest prices in Covered California and arguably the smallest network – at least in the HMO it is offering on the exchange. That plan excludes Orange County's two largest integrated health systems, MemorialCare and St. Joseph Health.

People who sign up for the Health Net HMO will not have coverage for some of the county's leading hospitals, including St. Joseph, St. Jude Medical Center, Hoag, Mission Hospital, Saddleback Memorial, Children's Hospital of Orange County and UC Irvine Medical Center.

Mission, St. Jude and St. Joseph, with the exception of psychiatric care, are not in the exclusive provider organization being sold by Anthem Blue Cross, either.

By reducing the number of providers caring for their insured population, health plans are able to offer a higher volume of patients to the hospitals and doctors who are in the network, which makes it more likely they will agree to accept lower payments.

Insurers say that excluding the most expensive hospitals from a network can cut premiums dramatically – in some cases by 15 percent or more.

"It is very possible that by including a high-cost provider, you would see a significant cost increase," says Jeff Smith, vice president for individual and family health plans at Blue Shield of California. "Especially if it's
high-profile or has a lot of patients that get serviced at that hospital."

Another factor behind the health plans' network-narrowing calculations is fear of being the one with the broadest network. That's because broad networks tend to attract sicker people, who often know they will be seeking treatment in the near future and are willing to pay more for the security of being able to see the doctors and hospitals they think they will need.

That process, referred to as adverse selection, can sharply raise the medical costs paid by insurance companies and drive premiums higher.

When insurers were putting together their 2014 individual and family plans for Covered California – plans that will largely be replicated for people seeking nonemployer coverage outside the exchange – they didn't know what their insured population, or their competition's, would look like next year.

"Everyone was reviewing their cards at the same time, and if you had an overly broad network and were the only one, you were an adverse selection magnet," says Alan Katz, executive vice president at SeeChange Health Insurance, which sells preferred provider organizations.

Insurance companies still have virtually no idea of their enrollments for next year, and they are monitoring their networks in case they need to adjust them as information comes in.

"So what's happening is that you've got all these carriers playing chicken in a dark cave, wearing dark glasses," Katz says.

And they are driving a hard bargain with hospitals and doctors.

"We actually recontracted with every physician and hospital in the new exchange network," says Blue Shield of California spokesman Steve Shivinsky. "They had to agree to cut their rates to get into the network, so that we could offer competitive prices on the exchange."

Carol Aroyan, Health Net's regional health plan officer for Southern California, said its streamlined provider lists – which she calls "tailored networks" – have been an important part of the company's strategy for years. Obamacare did not "necessarily kick us into higher gear," she said.

In choosing hospitals for Covered California, Health Net looked not only at cost but at geographical areas populated by people likely to shop on the exchange, Aroyan said. The company's exchange HMO includes just five Orange County hospitals – two in Santa Ana, two in Anaheim and one in Orange.

The trend toward leaner networks worries some.

"We see problems with network adequacy already" in the current commercial market, says Lisa Folberg, vice president for medical and regulatory policy at the California Medical Association, which represents the state's licensed physicians.

"I'm hoping we don't see any problems in the exchange, but based on experience, we are anticipating that there may be some problems. I think it's going to be very disappointing for people looking forward to finally having access to care not to be able to get a doctor when they need one."

At Consumer Watchdog, a Santa Monica-based advocacy group, staff lawyer Jerry Flanagan predicts the smaller networks will prove to be trouble for insurance companies.

"Certainly, a skinny network is on a collision course with the timely access rules," he says. "The insurers are setting themselves up for a lawsuit by so dramatically narrowing their networks."

Consumers Union, the advocacy arm of Consumer Reports, is more sanguine.

"It's not clear to me that narrow networks are going to be significantly worse for consumers," says Elizabeth Imholz, the group's resident health care expert. "The fact that they are different and not every hospital is in them doesn't necessarily make them skinny."

Imholz noted that excluding the most expensive facilities does not mean quality of care will be lower, since the data do not show that they are necessarily better.

Insurers say they will be closely monitoring enrollment in the exchange and stand ready to expand their networks if need be. Even some insurance executives seem to be a little nervous about the slimmed-down provider lists.

"The narrowing of networks allowed us to be a lot more affordable," Pam Kehaly, president of Anthem Blue Cross, said at the health industry conference in Huntington Beach last month.

"But what happens as volume in the exchange grows if we don't have some of these providers in the network? This is going to be a hot topic for a long time."

Contact the author at: 714-796-2440 or [email protected]

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