Limiting choice to control health spending: A caution

The following originally appeared on The Upshot (copyright 2014, The New York Times Company).

To what extent will the recent moderation in the growth of health care prices and spending continue? This is a big question, and the answer relies on many factors. But for plans offered in the new health insurance exchanges as well as a substantial minority of employer-sponsored plans, it may depend, in part, on how long consumers are willing to trade lower premiums for less choice. History offers a cautionary tale.

Insurers selling plans in the exchanges are offering fewer choices of doctors and hospitals. According to a 2013 survey by Mercer of employers who sponsor work-based health plans, over one-quarter of employers with more than 20,000 employees and 15 percent of those with over 500 employees offer plans with limited networks of providers selected for quality, as well as cost, considerations.

Narrow networks, as they are known, save plans and employers money because they tend to exclude doctors and hospitals that demand higher prices. Some of the savings is passed on to consumers through lower premiums.

A recent study by McKinsey & Company found that plans that covered care at more than 70 percent of hospitals in their area charged 13 to 17 percent higher premiums than plans with more narrow networks. It’s a trade-off: lower premiums for less choice. However, the restrictions in choice may not be detrimental to patients, as suggested by a recent study of narrow network plans in Massachusetts, which found that such plans were associated with a 36 percent reduction in health care spending for consumers who joined them and their employers.

We’ve seen this before. Seeking to end the rapid rise in health care costs, in the 1990s employers embraced managed care plans — plans, like health maintenance organizations, that restricted consumers’ choices with narrow networks, as well as requirements for preapproval for some forms of treatment. Though such plans were promoted nationally by the Health Maintenance Organization Act, signed by President Nixon in 1973, they did not achieve prominence until the 1990s. By 1993, 51 percent of private plan enrollees were covered by managed care; a mere two years later, that figure rose to 70 percent.

About this rush toward managed care, Robert Winters, head of the Business Roundtable’s Health Care Task Force from 1988 to 1994, explained: “What happened in the late 1980s and in the early 1990s was that health care costs became such a significant part of corporate budgets that they attracted the very significant scrutiny of C.E.O.’s,” and more and more C.E.O.’s were “saying, ‘Goddammit, this has to stop!’”

What stopped it, at least temporarily, was greater restrictions on choice of doctors, hospitals and treatments and a greater willingness of employers and consumers to accept them. Health care spending growth moderated. After many years of rapid growth, premiums held steady in the mid-1990s. The success didn’t last.

To keep the lid on premium growth, and in an attempt to maintain profitability, over the years plans further tightened networks, imposed more frequent and stringent preapproval rules, and offered less coverage for more cost sharing.

These cost-saving measures became increasingly unpopular. The backlash was swift and severe. Consumers filed class-action lawsuits against insurers, alleging that H.M.O.’s misrepresented the level of coverage and service they delivered. Stories of patients denied coverage for specific treatments circulated, whether factual — a denial of a wheelchair to a paraplegic patient— or fictional — Helen Hunt’s famous dissatisfaction with her H.M.O. in the 1997 movie “As Good As It Gets.”

Physicians bristled at plans’ attempts to circumscribe doctors’ autonomy in medical decision making, contributing to the negative reputation of H.M.O.’s. States enacted consumer protection laws, and Congress passedpatients’ bill of rights legislation.

In one sense, the backlash worked. Plans backed away from the practices most distasteful to consumers. America entered a new age of health care plans, with less restrictive networks and less onerous preapproval rules.

In another sense, the backlash is a story of failure. The cost control that managed care brought was reversed. By the turn of the millennium, health care spending and premium growth had returned to their historical highs. Americans had rejected the trade of lower premium growth for less patient and doctor autonomy and choice.

In an insightful analysis of the rise and fall of managed care, David Mechanic of Rutgers University wrote that the episode reflected fundamental American values: “Basic to the backlash against managed care is the underlying American cultural preference for independence, autonomy, choice, and activism, and the view shared by many Americans that there should be no barriers to their access and choices in seeking and receiving medical care.”

Today’s new narrow network plans also restrict choices, so will they suffer the same fate as 1990s managed care?

Already there are signs of disgruntlement and increased scrutiny of narrow networks. Experts have questioned the ability of consumers to understand the extent of plans’ networks at time of enrollment, and consumer advocateshave called for greater transparency.

Consumers complained when the high-priced Cedars-Sinai Medical Center in Los Angeles was excluded from the networks of all but one exchange plan. Narrow networks were an issue in a campaign for a vacant House seat in Florida. Regulators in some states are restricting insurers’ ability to exclude some hospitals from their networks or considering banning narrow networks altogether. A new regulation in Washington State requires that plans cover enough doctors so that any enrollee can find a primary care appointment within 10 days and 30 miles. A national organization that rates the quality of health plans is considering adding a measure of network adequacy. Medical associations and consumers have filed lawsuits against insurers, claiming harm from narrow networks. The Obama administration has issued regulations to increase the choices of providers plans must offer,including more that serve low-income patients, as policy experts have called for minimum standards and consumer safeguards.

Despite these early warning signs, it’s too soon to tell if narrow networks are doomed, along with the cost control they offer. There are some reasons consumers may be more tolerant of them than 1990s managed care plans. Today’s narrow network plans are less restrictive in some ways; for example, they don’t require preapprovals as often. At least in the exchanges, consumers have a choice of network size; in the 1990s many were forced into H.M.O.’s by their employers.

Also, today’s plans and health care organizations may be more focused on quality than their predecessors. Limits on choice don’t force patients to go to poorer-quality doctors and hospitals, nor do they restrict access to the types of doctors consumers need most. Plans might be designed to provide adequate access to primary care doctors, for instance, as suggested by arecent study of narrow network plans in Massachusetts.

Nevertheless, the story of 1990s managed care is a cautionary tale: Cost control by limiting choice can seemingly be achieved, only to slip away if consumers and providers reject the limitations it imposes. Only with great hubris can one say that low health care price and spending growth will be sustained long term and that narrow networks will play a role.


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