Patient Engagement

Are High-Deductible Plans vs. Narrow Networks Really Our Two Options?

Interview · March 17, 2016

We’re spending a lot of money on care that is not necessarily improving people’s health, but let’s be careful in thinking through what our goals really are, says Kate Baicker, Chair and C. Boyden Gray Professor of Health Economics at the Harvard T.H. Chan School of Public Health. Baicker sat down with NEJM Catalyst’s Tom Lee to discuss the pluses and minuses of high-deductible plans versus narrow network plans, what regulators can do to make sure consumers aren’t harmed from a lack of information about narrow network products, and which option is more likely to be complicated for patients. Read or listen to the interview below.



Tom Lee: This is Tom Lee for NEJM Catalyst. I’m speaking today with Kate Baicker, Chair and C. Boyden Gray Professor of Health Economics at the Harvard T.H. Chan School of Public Health.

Kate, my assumption is that you think health care coverage is a good thing, and that your research in Oregon demonstrates that, do I have that right?

Kate Baicker: As a health economist, I always think about the benefits of a policy and the cost of the policy, and it seems really clear to me that expanding health insurance has enormous benefits for the people who enroll. They have better reported health, better access to care, big improvements in mental health, big improvements in their financial circumstances (with some mixed results on what happens to their clinical or physical health), but overall, they’re clearly much better off with insurance than being uninsured. But it also comes with a cost. That extra health care that people use costs money and has to be paid for by higher taxes or diverting spending from other public programs, so there are enormous benefits to expanding insurance and it has to be paid for somehow.

Lee: Your research did show, I believe, that costs do go up with those benefits, more ED visits, other type of visits, and so on. How to control costs is a conundrum that everyone I know is obsessing about. Are the two major options really high-deductible plans versus narrow network plans?

Baicker: I’d like to reframe the goal a little bit. I think we all want there to be higher value from our health care spending. We want to get more bang for the buck, and that could mean getting the same health outcome but not wasting as much money doing it. Or it could mean spending even more on health care, but getting much more health than we’ve been getting now. So it seems really clear to me that we’re not getting high value out of our health care system, and I want to improve the value rather than just necessarily lower the costs.

I also think the evidence suggests that we’re spending a lot of money on care that is not improving people’s health a lot, so reducing costs isn’t such a bad shorthand for that. But I want to be careful in thinking through what our goals really are. It’s not just spending less. It’s maybe spending less, and definitely getting more health. So that amendment aside, your question — what are the main ways to do that — is our choice between something like a high-deductible health plan and a narrow network. I think a lot of those policies can actually work in combination, and I want to think about how to refine them to get the most value out of the health care system.

High-deductible health plans by themselves are pretty crude. There are a lot more nuanced ways of implementing patient cost sharing. I think narrow networks have a bad rap. There’s this suggestion that it’s all about denying care to people or denying them access to particular providers, but I think that they can be a really important part of driving patients toward higher value care.

Lee: Okay, so I get it that these two aren’t the only two options out there. Maybe you can quickly summarize what you think are the big pluses and the big minuses of these two major structures that other things might be layered on.

Baicker: That’s a great question, because there really are pros and cons of a lot of these policies, and the ones we’re talking about now are just a subset. You could also think about complimentary provider, payment reforms, and a really wide range of options, but let’s start with high-deductible health plans.

There’s something to be said for aligning patient incentives with high-value care. When care is lower cost to patients, they use more of it, and I think that’s kind of surprising to some people and not at all surprising to a lot of economists. In essence, we’re saying the demand for health care slopes down. When it costs less, people use more, and that’s like a lot of other goods in the economy. It’s the way we think about purchasing lots of other things, but before the large body of corroborating research was developed, I think it was surprising to think about people shopping for health care the way they shop for other things. Of course, health care is very different from lots of other goods in many ways, but it does boil down to the fact that when patients face higher costs for care, like a higher deductible or higher copayments, they think twice, and they use less care.

Well, that has some pros and some cons. They do cut out care that is of questionable value. If there’s some item of health care that you want but that your doctor doesn’t really think produces all that much health, and you get more information about it—if you have a high copay or a deductible you might not consume that care. And that could improve the value that’s delivered in the health care system.

On the other hand, that’s kind of an idealized way to think about how people incorporate costs into their decision-making process. People may also cut out care that’s of really high value. There’s some evidence that even as low as a $5 copay reduces adherence to medications that might be really important, just as much as it reduces adherence to medications that might be of more questionable health benefit or other kinds of care. So we do see people cutting back on low-value care, but we also worry a lot about them cutting back on high-value care, and that’s of particular concern for low-income populations where what might seem like an affordable copay to some people really precludes them from getting access to extremely beneficial care for them.

So, the really crude, high-deductible health plan that has the same dollar amounts for high- and low-income patients, and that implements the same copays for high- and low-value care, may not improve value in the way that we’re hoping while it’s cutting back on spending. There are a lot more nuanced varieties of patient cost sharing, though, and we can get to those next.

Lee: How about your comments on narrow networks?

Baicker: The first question is how do you even define a narrow network? The basic idea is that patients face lower cost sharing for going to hospitals or health care providers that are in their network, and face higher cost sharing, perhaps much higher cost sharing, for going to providers outside their network. The narrower the network, the stronger the push for patients to go to a restricted set of hospitals and providers.

The advantage of an approach like that is that it can steer patients toward higher quality and lower cost providers, and it can give insurers leverage to negotiate lower prices with any given set of providers. If the insurers have at their disposal the option of saying, well if you don’t lower prices you’re out of the narrow network, they have a lot of leverage with providers to come in with lower prices for each service. So the upside of a narrow network is that it can focus patients on the providers that are delivering high-quality care at a reasonable price, and can provide a lever to actually reduce the price of care at any given provider.

The downside is that really narrow networks can actually restrict patients’ access to an important set of providers providing high-quality care for the conditions that they really need, and there’s a risk that insurers can use extremely narrow networks to remove access to care for some patients and to make it less attractive for sick patients, who need a lot of care to enroll in their insurance product. It can be a way to cream skim or to select against getting really sick patients.

Now, there are some regulatory or legislative options to try to ensure that patients have at least a minimum set of providers that they can go see. It’s not clear how well those regulations work to protect patient access. There’s also a concern that insurers may be contracting with their networks not because they are high quality at a reasonable price, but just because they’re cheap. And patients may be worried that the providers who are included in their narrow network may not be high-quality providers, but may rather just be providers who are willing to cut the lowest cost with their insurers. So there are pros and cons of that mechanism.

The reason that I think narrow networks are an important component of increasing value and maybe restraining health care spending growth is that so much of what drives what we spend on health care happens at the provider-patient interaction. Patients themselves don’t really have a lot of tools to ensure that they are getting an efficient bundle of care — that they’re going to a provider with high quality but low readmission rates or the best use of available products. Rather, the insurer in negotiation with the providers has more of an opportunity to drive down prices and also to choose among the providers in a local area, the ones who are providing the highest quality care at an affordable price, and that’s a great mechanism for keeping health insurance premiums down. So there are certainly risks associated with narrow networks, but it seems to be a particularly effective way to keep prices down while maintaining access across a wide range of care.

Lee: Do you have thoughts on what regulators should do to make sure the consumers aren’t harmed because of lack of information as they look at narrow network products?

Baicker: That’s the $64 thousand question or should I say billion in this context. It would be nice if there was a way to write down a rule that said your networks can be too narrow, but it is very hard to write down that rule, so right now regulators are scrutinizing insurance plans to make sure that every major type of care is covered, every major type of specialist is included. It is easier to describe the breadth of a network in terms of the hospitals that are included than in terms of the physicians that are included, so our network adequacy regulations right now are not as well developed as I think most policy makers and advocates would like them to be. But that’s a direction to go, to refine those measures to ensure that there is an adequately broad network within the patient’s geographic area to make sure that the patient isn’t being precluded from getting beneficial care because of the network.

The reason that it’s so important to have those measures ahead of time is that most patients don’t know whether the network is adequate until they get sick and actually need care, so when you sign up for insurance, how would you know if the network of oncologists was adequate or not until you are unfortunate enough to need an oncologist, and then discover that there isn’t somebody in your geographic area, who’s recommended by any physician that you trust or who’s able to provide the care that you think that you need. That’s why it’s so important to have measures ahead of time when people are choosing insurance plans.

Those measures could be based on the providers that are included in the network in which patients in the area actually see those providers. It could also be based on patient satisfaction and patient reports of their satisfaction with the network that they’ve experienced in their insurance plan, so when you’re shopping for insurance there could be star ratings or quality ratings that were in part based on what other patients who had a range of health care needs said about whether they were able to find a provider who met their needs.

Lee: When I see my patients, one thing that’s been increasingly clear is that they’re more and more overwhelmed by the complexity of their choices and their insurance products, and so are my colleagues, frankly — the providers. Do you have a sense of which of these two major options is more likely to be more complicated for patients?

Baicker: The kind of cost sharing that I’m talking about as being more nuanced than a high-deductible health plan sounds really complicated, but I don’t think that it needs to be as far as the patient experience or the provider experience goes. What I have in mind by more nuanced cost sharing is something like value-based insurance design, where the copay that a patient faces depends not only on the type of care being received but on the value of care for that patient, and that’s an inherently complicated thing. There are lots of medications that are of extremely high value for some patients and of very little value for others, and you wouldn’t want to have those patients have the same copay.

An MRI or other imaging procedures might be really high value in some circumstances and contraindicated in others, and you wouldn’t want to have the same copay for those. You’d want to take into account patients in common thinking about what a reasonable copayment is so that you’re not unduly burdening low-income populations, particularly in times of high health needs. That sounds like a really complicated insurance contract, but in many ways it’s not that much more complicated than our current insurance contracts. It requires drawing on a broader set of data, but the menu of copayments could be boiled down to be pretty straightforward for a given patient in a given circumstance. So I’m so optimistic about the potential for more nuanced cost sharing to be an important part of the picture. But we’re not quite there yet.

Narrow networks, on the other hand, are a very straightforward thing to implement. You can make a menu available to patients that show them which doctors are in-network and which doctors are out-of-network, and we’re doing that already. We already have in-network and out-of-network contract plans. The only question for patients and for physicians is how adequate the network is and how narrow is the narrow network, and I don’t think we have good enough measures yet for patients to make great decisions that won’t surprise them, that won’t present an unpleasant surprise if they’re unfortunate enough to get sick and need health care and then find themselves with an inadequate network.

I don’t think the measures are quite there yet, but the implementation is relatively straightforward, and I don’t think people are as dissatisfied as popular press reports might lead you to believe. And I also think it’s important to keep in mind that people care a lot about their health insurance premiums. A lot of gaining access to health care is about being able to afford insurance, and narrow networks really do drive down insurance premiums, so that’s an important piece of the puzzle that is sometimes overlooked.

Lee: So if I’ve got it right, you would lean toward narrow networks over high-deductible products, but there still has to be value-based insurance design integrated so that patients and physicians have incentives to pursue efficient, as well as high-quality, care — is that a good summary?

Baicker: Yeah. I think I might say that among the relatively crude tools that are currently in use, narrow networks seem to offer a pretty good opportunity to lower premiums while maintaining access to high-quality care. In an ideal world, I’d really like to complement those crude tools with much more nuanced ones, and cost sharing of a more nuanced variety, I think, has a lot more potential than a really heavy-handed and inflexible high-deductible health plan of today.

Lee: Well, thanks so much, Kate, for your comments. I’m sure we’ll be talking with you more as the years go by and our system evolves. We’re not going to ever get it completely right. We’ll always be tweaking it, and I know that you’ll be a major player nationally and not just in the academic world, but at several other levels as well. Thanks very much.

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