The Resurgence of Limited-Network Insurance

Posted on Jan 26, 2013 by Ailee Slater (G+)

On October 1st 2013, a new American marketplace will open: insurance exchanges, online. As mandated by the Affordable Care Act, individuals and employers will soon be able to shop, compare and eventually buy a health insurance plan to fit their needs. In anticipation of these exchanges, health insurance companies across the nation are experiencing a new trend in consumer-friendly coverage - insurance policies that reduce costs by offering a smaller network of care.

An insurance network refers to those doctors and institutions contracted by the insurer to care for any members of the insurance plan. Primary physicians and specialists, as well as pharmacies and hospitals, will be included in an insurance network. Although a particular network can include as many as 50,000 physicians, when a network is instead limited to, say, less than 10,000 physicians, the overall cost is lowered for the insurance company and their consumers. This is known as a limited-network insurance plan. Insurers across the United States have in the past two years been offering more and more limited-network plans, hoping to reel in new customers with the promise of reduced premiums.

At the end of 2011, the Steward Health Care System of Boston was given permission from state regulators to market an insurance plan with a limited network; that plan now offers a 15 to 30 percent reduction in insurance costs to consumers willing to settle for less choice when it comes to visiting a health care provider. Only those doctors and hospitals within the Steward Employee Choice Network (11 acute care hospitals, over 2,000 physicians, a home health agency, and hospice) will be covered by this limited-network policy. Like many other limited-network insurance policies, the Steward plan is marketed toward small businesses looking to save money while at the same time following the Obamacare mandate to provide insurance for those they employ.

For the employer, limited-network insurance seems like a win-win situation - healthier employees, and lower costs in health insurance premiums. Some employees, however, may be less than satisfied with insurance that covers only in-network care. Indeed, limited-network insurance opponents point out that policies which only cover a small network of care may end up costing consumers more money in the long run. If a patient is diagnosed with a chronic condition and no specialist in treating that condition exists within the designated insurance network, that patient may be forced to pay a huge amount of health care costs entirely out of pocket, and over a number of years. Although limited-network plans do sometimes pay for out-of-network services, a doctor referral is required, and even then there is no guarantee that any care not provided in-network will ever be reimbursed by the insurer.

Consumer advocates suspicious of limited plans also point out that even if there is no need for an out-of-network specialist, patients may be forced to endure generally poor care due to the fewer care options within a limited-network insurance plan. People with complicated medical needs, or those who do not reside near in-network hospitals, may find themselves at a disadvantage if their employer switches to a limited-network plan. In 2011, the L.A. Times published an article detailing the case of insurance provider Health Net and their limited-network plan. Whereas a full insurance plan might include access to 47,000 physicians, this slimmed down plan only included around 7,000. Although this limited-network Health Net plan promised savings of up to 14 percent for customers, some employees were upset with the change upon learning that they would have to stop seeing their usual primary care physicians, or else pay for the cost of those visits themselves. Still, those in favor of limited-network insurance point out that the money saved very much outweighs any disadvantages of having access to fewer doctors.

For small businesses, the ability to save around 25 percent on premiums when providing insurance for their employees is a significant benefit of limited-network health insurance. What's more, most states already have regulations on all insurance providers, guaranteeing that even limited-network health plans must cover certain health care needs including emergency services such as an ambulance, and prescription drugs or antibiotics. Most states will also require that an insurer must cover the costs of visits to physicians within a reasonable distance to the customer's home.

The New York Times in 2010 reported on one small business, the Haro Bicycle Corporation of California, which had happily switched to a limited-network plan for its 30 employees. When Haro was faced with an increase of nearly 30 percent in premiums, switching to a limited-network insurer proved to be a fantastic way to keep down costs while still managing to provide employees with health insurance that met California regulations. Interestingly, HMOs (Health Maintenance Organizations) with their restricted-network insurance policies were actually quite prevalent before the 1990s. These HMOs of the past would offer only those services provided through a network contracted by the HMO; often, a primary care physician was responsible for coordinating all necessary care, and for providing a referral if out-of-network care was needed. In the 90s however, insurance customers began to prefer PPOs (Preferred Provider Organizations) instead of HMOs.

PPOs offered health insurance plans with more options in terms of staying with a preferred primary care physician and still receiving coverage, as well as having access to a larger network of health care providers. It will be intriguing to see if the online insurance marketplaces and other mandates of the Affordable Care Act lead to a resurgence in limited-network popularity amongst individuals and families; it certainly seems that this trend in limited-network insurance is already occurring for big and small businesses. As more insurers prepare for the upcoming competition of online exchanges, there is no doubt that many more will offer limited-network plan in an attempt to attract customers with the promise of significantly lower premiums. It will be up to the consumer to decide whether monetary savings is worth the resulting limitations in access to doctors, hospitals, and other healthcare providers.