Network Design: Trends in Tiered and Narrow Insurance Networks

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Sylvia Mathews Burwell
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Mark Bertolini
Mark Bertolini

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Network Design:
Trends in Tiered and Narrow Insurance Networks
October 2015
Prepared by:
Avalere Health LLC
1350 Connecticut Avenue NW
Suite 900
Washington, DC 20036
Network Design: Trends in Tiered and Narrow Insurance Networks
Horizon Blue Cross Blue Shield of New Jersey provided funding for this research.
Avalere maintained full editorial control.
Network Design: Trends in Tiered and Narrow Insurance Networks
The U.S. healthcare system is undergoing major transformation. Payers and providers
across the country are moving away from uncoordinated, volume-driven care. Instead,
they are moving toward implementing new payment models and network designs that
are altering care delivery, with a heightened focus on population health and paying
for value.
Horizon Blue Cross Blue Shield of New Jersey recently announced the launch of the
OMNIA Health Alliance as well as new tiered health plan offerings. This tiered provider
network with clinical data sharing capabilities and value-based payment characteristics
will be offered state-wide in the individual, small group, large group fully-insured,
and self-insured markets. In making this decision, Horizon joins Aetna, AmeriHealth,
and Health Republic in offering a tiered network in New Jersey’s commercial health
insurance market.1
Horizon asked Avalere to examine the prevalence of tiered and narrow insurance
network products in U.S. health insurance markets. Specifically, this brief examines the
available data on their prevalence, evidence of their effectiveness in improving care
while holding down costs, factors driving their growth, potential challenges associated
with these networks, and their possible roles in the increasingly value-driven U.S.
healthcare ecosystem.
“Narrow,” “tiered,” “performance,” and “high-value” are all terms used to describe
insurance networks. They are often used interchangeably. However, many times they
are indeed distinct.
Narrow Networks
As defined in the Kaiser Family Foundation/Health Research & Educational Trust 2015
Employer Health Benefits Survey:
“[N]arrow networks are plans that limit the number of providers who can participate
in order to reduce costs. Typically narrow network plans include fewer providers
than a typical HMO network.”2 Narrow network plans often offer consumers
low monthly premiums,3 though consumers can be exposed to significant out-ofpocket costs if they seek or need care outside of the prescribed network.4
Network Design: Trends in Tiered and Narrow Insurance Networks
Tiered Networks
Tiered networks are less restrictive than narrow networks. Much like the tiering of
prescription drugs on a formulary, tiered provider networks offer consumers financial
incentives to seek care with preferred providers. Yet, under this construct, consumers maintain access to, and insurers maintain contracts with, non-preferred providers.
AcademyHealth recently described tiered networks as:
“[A] variation of narrow networks,” that “offer consumers a broader array of choices
and more flexibility. Consumers are subject to different levels of cost-sharing such
that consumers who choose providers in ‘high-value’ tiers pay less...The tiered
network strategy takes advantage of recent advances in the use of data to develop
profiles of provider groups or individual providers.”5
These networks encourage patients to visit preferred providers by having different costsharing requirements based on the provider’s tier. Like narrow networks, tiered network
plans can offer consumers low monthly premiums, and often lower cost-sharing and
deductible levels for using preferred providers. Consumers enrolled in tiered network plans
can also be exposed to significantly higher out-of-pocket costs if they seek or require
care in non-preferred tiers or outside of the prescribed network.6
Role of Provider Performance
In the case of both tiered and narrow networks, a provider’s past performance may drive
their inclusion in a preferred tier. For example, plans may identify preferred providers by
evaluating one or a combination of clinical, efficiency, cost, and quality factors.
Comprehensive enrollment data for tiered and narrow network plans across the commercial insurance market is not available. However, data does reveal that these network
designs are highly prevalent in the exchange markets, and that the concept is gaining
traction among employers.
Employer Market
Recent data on 2015 employer plan designs reveals that 17 percent of employers are
offering high-performance, tiered networks in their largest plan by enrollment.7 The
prevalence of these networks increases for the largest employer groups offering health
benefits—24 percent of employers with more than 200 employees offer tiered, highperformance networks in 2015.8 In the Northeast region, the percentage of employers
offering a tiered, high-performance network has increased from 15 percent in 2007 to
27 percent in 2014.9
Network Design: Trends in Tiered and Narrow Insurance Networks
Employer embrace of narrow networks has been more muted. In 2015, approximately
7 percent of surveyed employers offering health benefits offered a narrow network plan,
which is consistent with 2014 trends.10
ACA Exchange Market
In the individual market, where insurers are under intense pressure to keep premiums
low, narrow networks represent a significant portion of the plans offered in the
exchanges. A recent Avalere study of the 2015 exchange market finds that the average
provider networks for plans offered on the health insurance exchanges created by
the Affordable Care Act (ACA) include 34 percent fewer providers than the average
commercial plan offered outside the exchange.11 Another recent study examining 2015
exchange plan networks characterized nearly 50 percent of exchange plans as
“narrow” or “tiered.”12
Prominent insurance executives speak frequently about the importance of tiered
networks and alternative payment models to their business, and their commitment to
them over the coming years.
During Aetna’s first quarter 2015 earnings call, CEO Mark Bertolini asserted:
“[V]alue-based contracting now represents approximately 30 percent of Aetna’s
medical spend with a goal to achieve 75 percent by the end of the decade…We
have over 760,000 members in what we call our high-performance networks.”13
UnitedHealthcare CEO Stephen Hemsley frequently expresses his company’s commitment to these models. In speaking about the clinical successes of the UnitedHealth
Premium physician designation program,14 which can be organized into a tiered network
for employer customers, Hemsley said:
“[T]he modern health system is being shaped around aligned incentives, supported
by transparent information and consistently high-quality clinical services. These
changes are helping our nation in turn to achieve optimal evidence-based utilization
and cost…We remain focused on executing a deliberate quality and cost agenda
because improving healthcare quality and affordability is core to delivering value.”15
Network Design: Trends in Tiered and Narrow Insurance Networks
Payer Leadership in Implementing Innovative Network Design
Payers such as Aetna, Anthem, Blue Shield of California, Cigna, Harvard Pilgrim,
Health Net, Highmark Health, Humana, Cambia Health Solutions, and UnitedHealthcare,
among others, offer tiered and narrow networks in markets across the country.16
Some insurers are also working in tandem with providers and health systems to offer
co-branded or private label health plans with tiered or narrow networks. These payerprovider relationships can involve sophisticated data sharing and alternative payment
arrangements. Examples include Innovation Health serving the Washington, DC, area
(a partnership between Inova and Aetna), and Community Advantage Plan serving New
Jersey (a partnership between AmeriHealth and
Cooper University Health Care).17
Alternative Payment Models Bolster Innovative Network Designs
Alternative care delivery and payment models give payers and providers reason to
collaborate, and are acting as change agents to drive better care and lower costs.
These concepts do not inherently tie directly to a tiered or narrow network, but can be
offered successfully within such network structures. Payers such as Aetna, Blue Cross
Blue Shield of Michigan, CareFirst, Horizon, and Universal American have embraced the
accountable care and patient-centered medical home models of care,18 and are working
collaboratively with providers to improve patient care, quality, and outcomes.
One highly studied model that has produced meaningful results and sustained success
is the Blue Cross Blue Shield of Massachusetts (BCBSMA) Alternative Quality Contract
(AQC). The voluntary AQC consists of a population-based global budget with two-sided
risk and performance incentives linked to quality metrics. The contract includes about
90 percent of the BCBSMA network, but has, to date, been limited to the insurer’s
HMO members. Similar performance-based contracts that include PPO members will
launch in January 2016. The most recent evaluation of the AQC found that participating provider groups achieved a 10 percent savings on medical spending by the fourth
year, as well as significant improvements in quality and health outcomes, particularly
on measures tied to payment.19 While the AQC has not been used as a design feature
in BCBSMA’s tiered products, other payers could implement similar models in tiered or
narrow networks.
Network Design: Trends in Tiered and Narrow Insurance Networks
The existing research focused on tiered and narrow network design is most compelling when considering the demonstrated premium and total cost of care savings to plan
sponsors and enrollees.20
Tiered and narrow networks can drive premium reductions of 5 percent to 20 percent
or more when compared to broad, open access plans.21 One particularly prominent
study examined the impact of tiered networks offered to Massachusetts state employees. The study concludes that employees who switched to a tiered network plan spent
36 percent less on medical care. Reductions in spending were attributable to less
utilization of hospitals and specialty care; spending increased for primary care.22 Another
compelling case study involves a Taft-Hartley plan that experienced significant reductions in medical trend after the plan evaluated its physicians on cost, efficiency, and
select quality metrics, removed 50 physicians from its network, and instituted a performance bonus for the remaining 1,750 in-network physicians meeting efficiency and
quality standards.23
While the results of these studies are promising, there is a need for further publicly
available research to more fully measure the impact of narrow and tiered networks on
quality and clinical outcomes.
Many factors are influencing the development of tiered and narrow networks.
Cost Growth
After several years of modest upticks, health spending growth is expected to average
5.8 percent annually through 2024.24 At the same time, healthcare spending and
premiums are projected to continue growing faster than workers’ wages.25 As a result,
provider networks are developed with cost growth in mind.
Network Design: Trends in Tiered and Narrow Insurance Networks
General Market Forces
In addition, forces inherent in local insurance markets also drive the creation of new
network designs. Specifically, other variables driving the development of tiered and
narrow networks include:
• Variation in provider quality, pricing, and healthcare spending within local
markets, driving insurers to leverage this variation to craft networks of the
highest quality, most efficient providers26
• Provider and insurer concentration in local markets, which impacts an
insurer’s ability to offer and provider willingness to participate in tiered or
narrow networks
• Brand strength of providers and/or insurers in local markets, which influences
contract negotiation dynamics between insurers and providers
• Local market activity in the Medicare and Medicaid programs (Medicare
Advantage, Accountable Care Organizations, Medicaid expansion), which
can influence an insurer or provider to embrace alternative payment models
or narrow network constructs across segments
• Consumer preferences that include a demonstrated willingness to accept
smaller networks for lower premiums27
Affordable Care Act
Multiple reforms stemming from the ACA are accelerating the trend of tiered and narrow
networks. Insurers must abide by market requirements, such as medical loss ratio rules,
community rating, guaranteed issue, premium rate review, and benefit standards, while
designing products to remain competitive in an increasingly cost-transparent environment. Network design and composition remains one of the most effective tools available
to insurers to build competitive products. Meanwhile, for employers seeking to avoid
paying the Cadillac tax on high-cost health plans beginning in 2018, tiered and narrow
networks are one possible benefit design change that could help to avoid triggering
the tax.
Medicare’s Move Toward Value-Based Care
As payers move to market and implement new network designs, providers are also
increasingly adapting to a system that rewards value over volume. Indeed, the drive
to value-based payment potentially accelerates the rate at which providers may be
interested in participating in narrow or tiered network designs. For providers, the focus
on quality improvements and paying for value stemming from the ACA was accelerated
with the Department of Health and Human Services (HHS) announcement to tie
Network Design: Trends in Tiered and Narrow Insurance Networks
30 percent of Medicare fee-for-service payments to alternative payment models by
2016, and 50 percent by 2018. In making the announcement, HHS Secretary Sylvia
Burwell explained that:
“[O]ur goal here is to move away from the old way of doing things, which amounted
to, ‘the more you do, the more you get paid’ by linking nearly all payment to quality
and value in some way to see that we are spending smarter.”28
Tiered networks can be a tool that helps to align incentives between payers and providers to further enhance the chances for success in paying for quality and value.
Patient Access
Patient access to care in tiered and narrow networks requires the careful attention of
insurers and providers to safeguard against care disruptions. While, as noted above,
tiered and narrow networks can reduce costs and may improve quality, too narrow
of a network can potentially reduce or delay access, or lead to significant out-of-pocket
costs for consumers. Ensuring access to care in tiered and narrow networks is particularly important for those patients with significant health needs. The Urban Institute notes
the challenge of balancing affordability in health plans with access to quality care,
“If the network overly limits choice of provider, excluding those with specialized expertise in treating particular conditions, it could not only compromise the quality of care but
also expose policyholders to unanticipated and potentially crippling financial liabilities.”29
Moreover, after reports surfaced that 2014 exchange plans were excluding cancer
centers from their networks,30 the federal government and some states stepped up
network reviews for cancer centers in 2015 exchange plans. A recent Avalere survey
conducted jointly with the National Comprehensive Cancer Network found that while
the majority of cancer center respondents are included in more than or the same
number of exchange plan networks as in 2014, half of centers report that individual
exchange plans in their state have tiered provider networks with differential enrollee
cost-sharing at each tier. Most of the responding centers report that they fall in the
higher tiers only.31
Network Design: Trends in Tiered and Narrow Insurance Networks
Further, action to regulate network adequacy at the state level may surface in the
coming months following the release of the National Association of Insurance
Commissioners (NAIC) revision of the Managed Care Network Access and Adequacy
Model Act. The latest Model Act draft addresses tiered networks, encouraging state
insurance regulators to examine them closely for sufficiency purposes.32
Payers and exchanges—both private and public—will need to focus on providing more
consumer decision support tools showing enrollees which doctors, hospitals,
and prescriptions drugs are covered, as surveys demonstrate patients would welcome
additional transparency tools and resources to navigate their health insurance selections.33 Indeed, a survey conducted by the National Health Council in partnership with
Lake Research Partners found that more than one-third (36 percent) of patients thought
it was difficult to find a list of providers when shopping on ACA exchanges.34 And
while some consumers may understand the type of network in which they enroll, many
do not. In a recent McKinsey & Company survey, 26 percent of exchange enrollees were
unaware of what type of network they had selected.35 This lack of understanding can
prove particularly problematic when and if an enrollee seeks care at an out-of-network
or non-preferred provider. This is likely one reason why a recent survey of insurance
CEOs found 65 percent worry that narrow networks will reduce patient satisfaction.36
Lack of Alignment Between Measures and Models
While tiered and narrow networks and innovative payment arrangements are expected
to be an important part of the future U.S. healthcare system, the vast array of reporting requirements, quality measures, and different approaches from different payers is
burdensome for providers. Payers need to be flexible and work closely with providers
to help them navigate this evolution.
Patient Costs Associated with Out-of-Network Care
In addition, there is a concern that providers will see an increase in bad debt from
patients seeking out-of-network or non-preferred care. Given that out-of-network
spending does not count toward an enrollee’s federal maximum out-of-pocket limit,
the bad debt concern is most acute for providers who are out-of-network.
Network Design: Trends in Tiered and Narrow Insurance Networks
Innovation in network design offers opportunities for payers, providers, employers, and
patients. Nevertheless, how network design is implemented is likely core to the long-term
success of the approach. Indeed, closed network products of the 1990s gave way
to open access plans in the early 2000s.37 In this post-ACA era, network composition is
once again playing a central role in health benefit design and health policy debate.
This time around, the goals of enhancing clinical quality and improving the patient experience, while lowering the total cost of care, are increasingly at the forefront of these
discussions. Initial research on these benefit designs suggests promise in reducing
costs; however, additional experimentation and publicly available research is needed to
demonstrate clinical impacts and quality improvements of these networks.
Network Design: Trends in Tiered and Narrow Insurance Networks
For the 2016 plan year in New Jersey, Aetna is offering a tiered network plan for New Jersey state employees called the Liberty Plan.
Kaiser Family Foundation. 2015 Employer Health Benefits Survey. September 22, 2015.
AHIP. Milliman Report: High-Value Healthcare Provider Networks. July 2, 2014.
Kaiser Health News. Warning: Opting Out Of Your Insurance Plan’s Provider Network Is Risky. March 18, 2014.
cademyHealth. Health Plan Features: Implications of Narrow Networks and the Trade-Off Between Price and Choice. March
aiser Health News. Warning: Opting Out Of Your Insurance Plan’s Provider Network Is Risky. March 18, 2014.
Kaiser Family Foundation. 2015 Employer Health Benefits Survey. September 22, 2015.
10. Ibid.
11. Avalere. Exchange Plans Include 34 Percent Fewer Providers than the Average for Commercial Plans. July 15, 2015.
12. McKinsey Center for U.S. Health System Reform. Hospital Networks: Evolution of the Configurations on the 2015 Exchanges.
13. Aetna. Aetna Reports First-Quarter 2015 Results. April 28, 2015.
14. UnitedHealthcare. UnitedHealth Premium.
15. Seeking Alpha. UnitedHealth Group Incorporated’s (UNH) Q3 2014 Results – Earnings Call Transcript. October 16, 2014.
16. Ascertained from Avalere web research.
17. Ibid.
18. Ibid.
19. Avalere. Lessons Learned from Blue Cross Blue Shield of Massachusetts’ Alternative Quality Contract as HHS
Explores Different Payment Models. March 3, 2015.
20. AHIP. High-Value Provider Networks. December 2013.
21. AHIP. Milliman Report: High-Value Healthcare Provider Networks. July 2, 2014.
22. Gruber J and McKnight R. Controlling Health Care Costs Through Limited Network Insurance Plans: Evidence from
Massachusetts State Employees.
23. Draper D, Liebhaber A, Ginsburg P. High Performance Health Plan Networks: Early Experiences. Issue Brief 111. May 2007. This information is reflected in testimony of Peter V. Lee, Pacific Business Group
on Health, before the U.S. House of Representatives, Committee on Ways and Means, Subcommittee on Health,
“Promoting Quality and Efficiency of Care for Medicare Beneficiaries” (March 15, 2005).
Health Affairs. National Health Expenditure Projections, 2014-24: Spending Growth Faster Than Recent Trends. July 2015.
Kaiser Family Foundation. 2015 Employer Health Benefits Survey. September 22, 2015.
26. AcademyHealth. Health Plan Features: Implications of Narrow Networks and the Trade-Off Between Price and Choice.
March 2015.
27. McKinsey & Company. Maximizing Value in High-Performance Networks. July 2013.
28. Department of Health and Human Services. Progress Towards Achieving Better Care, Smarter Spending, Healthier People.
January 26, 2015.
Network Design: Trends in Tiered and Narrow Insurance Networks
29. Urban Institute. Narrow Provider Networks in New Health Plans: Balancing Affordability with Access to Quality Care. May 2014.
30. NBC News. Top Cancer Centers Off-Limits Under Obamacare. March 19, 2014.
31. Avalere. Leading Cancer Centers May Be More Widely Included in Exchange Networks than Expected. April 22, 2015.
32. National Association of Insurance Commissioners. Network Adequacy Model Act. Draft released September 2015.
33. National Health Council. Measuring the Patient Experience in Exchanges. March 20, 2015.
34. Ibid.
35. McKinsey & Company. Hospital Networks: Updated National View of Configurations on the Exchanges. June 2014.
36. Modern Healthcare. Closer Provider-Insurer Ties Bring New Challenges. August 15, 2015.
37. Employee Benefit Research Institute. Tiered Networks for Hospital and Physician Health Care Services. August 2003.
Network Design: Trends in Tiered and Narrow Insurance Networks
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Network Design: Trends in Tiered and Narrow Insurance Networks

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