Like bikinis, HMOs can be too skimpy


Health plans resembling the HMOs of old may be poised to make a comeback in online insurance markets slated to open this fall under the health law.

Such plans, which sharply limit a consumer's choice of doctors or hospitals, fell into disfavor in the 1980s and 1990s because of their restrictions.

But the plans -- which have already reappeared among employers looking to slow rising premiums -- are expected to play a prominent role in the exchanges, where individuals and small businesses will shop for coverage starting Oct. 1.

Insurers, which are currently designing their plans, "will start with as tight a network control as they can," says Ana Gupte, a managed care analyst at Sanford Bernstein.

That trend worries consumer advocates, who fear skimpy networks could translate into inadequate care or big bills for those with complicated health problems.

Because such policies can offer lower premiums, insurers are betting they will appeal to some consumers, especially younger and healthier people who might see little need for more expensive policies.

Plans may also benefit from offering such policies because they are less attractive to those with medical problems, who can no longer be turned away beginning in January 2014.

"Plans will basically say they can minimize their risk by creating narrow networks," says John Weis, president of Quest Analytics, an Appleton, Wis., firm that analyzes networks for insurers.

State or federal regulators, who must review the policies, are unlikely to permit them to exclude an entire class of doctors, such as cancer or diabetes specialists. But there might be more subtle ways to discourage consumers with medical problems.

"They might have too few oncologists, or only general oncologists," for example, says Stephen Finan, policy director with the American Cancer Society Cancer Action Network.

Cost vs. choice

"Narrow networks may be more than adequate 90% of the time," Finan says, but are "not well-suited to deal with complicated medical conditions and chronic diseases."

That's because there may be few or no specialists available for complex conditions, so patients may have to seek care outside of the networks. If the policy doesn't cover non-network care, the patients may end up footing the bill themselves. Even if policies allow for outside-the-network coverage, patients can incur large co-pays or other costs. "Your (financial) exposure could be high," Finan says.

While the health law requires policies to include standard essential benefits, ranging from emergency room and hospital care to prescription drugs, it is less prescriptive about the size of the policies' networks of doctors and hospitals.

In March, the Obama administration issued rules stating that insurers must "maintain a network of a sufficient number and type of providers ... to assure that all services will be available without unreasonable delay."

That fell short of the standards sought by consumer advocates but pleased other groups that say insurers should have broad discretion.

The administration noted that "nothing in the final rule limits an exchange's ability to establish more rigorous standards."

Shaving costs

Insurers contend that by limiting network size, they can offer plans with higher-quality or more-efficient doctors and hospitals, which might slow spending or improve care.

Driven by consumer and employer demand for lower-cost plans, insurers are already rolling out narrow network policies that have shaved premiums 10% or more. A recent survey by benefit firm Mercer found that 23% of large firms offered such plans in 2012, usually among a choice of plans, up from 14% in 2011.

In Massachusetts, insurer Harvard Pilgrim launched its Focus Network in April, touting 10% lower premiums. While it includes 50 hospitals and 16,000 physicians, it excludes some high-cost systems.

In California, Blue Shield has a number of SaveNet HMO plans with networks averaging a little more than half the size of its standard ones. Next year, for example, one serving Marin and Sonoma counties will offer a network of about 100 primary care doctors and 325 specialists.

Still, narrow network plans are a hard sell to employers, particularly the large ones, which don't want to hear gripes about limited choice simply to save 10% on premium costs.

But small businesses and individuals buying their own coverage in the online markets might regard that trade-off differently. "If my doctor is in the (narrow) network and cheaper, it might work," says Wall Street analyst Carl McDonald at Citi Research, a division of Citigroup Global Markets.

Competing on price

To stand out from competitors, some plans are likely to offer the lowest possible rates, and would "narrow their networks" to do so, says Chet Burrell, CEO of insurer CareFirst in Maryland. He acknowledged that narrow networks could be "a subtle but powerful way" to discourage less-than-healthy applicants. "The question will be, what degree of tolerance will a state have to permit narrow networks?"

State rules on what makes an adequate insurance network vary. Some states, including California, specify that specialists must be available within a certain driving time or distance. Others simply say insurers must have sufficient numbers of providers. Some states don't have any requirements.

"State rules are very, very loose," says Weis at Quest, who says states should consider adopting the rules that apply to Medicare Advantage, the private alternative to Medicare. In that program, the federal government requires networks to include primary care physicians and more than 25 types of specialists within a specified travel distance.

Even though state rules vary, regulators say plans that are too skimpy will be called out by regulators, consumers or both.

"If you have a crummy network, no one will buy the plan," says consultant Robert Laszewski, a former insurance executive.

"We will look very closely at how plans put their packages together," says Sandy Praeger, the elected insurance commissioner in Kansas.

Many current insurance policies allow members to go out of network. But members face significant co-payments, which often start at 30% of the bill and can go as high as 50%.

It is often hard for consumers to figure out how much they might be charged if they go out of network, says Lynn Quincy, senior policy analyst at Consumers Union. In addition to meeting separate annual deductibles for such care, patients can be "balance-billed" by doctors or hospitals for the difference between what the insurer pays and the total charges.

That will remain the case under the federal health law. "There's no escaping that we're going to see" insurance policies that include networks both wide and narrow, says Quincy. "That can be OK if there are much better tools to reveal to consumers how adequate those networks are and how much it might cost to go outside of them."

Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a non-profit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.

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