The Big Insurance Trade-Off: Cost Versus Choice

In late July of 2018, Blue Cross Blue Shield of North Carolina (BCBSNC) made an unexpected announcement: they will be lowering premiums on Affordable Care Act (ACA)-compliant health plans. Specifically, BCBCSNC announced premiums would be on average 4 percent lower in 2019 than they were in 2018 for plans bought on the federal marketplace (an online exchange to compare and purchase ACA-compliant, non-group health insurance plans). How was BCBSNC able to lower premiums in a time of rising health care costs? They used a common method for lowering costs—a limited provider network.

Plans that limit a beneficiary’s choice of a provider are often referred to as narrow network health plans. In exchange for a more limited choice of providers, narrow network plans have lower premiums. Narrow network plans are able to offer lower premiums because they either a) negotiate lower reimbursement rates with a group of providers who ultimately benefit from increased patient volume through the network, or b) only contract with lower cost providers, sometimes excluding expensive health centers.

The trade-off between lower premiums and greater provider choice is a recurring issue in health policy. In the 1990s, a common health insurance structure was the Health Maintenance Organization (HMO). Under an HMO, services from out-of-network providers (i.e., those not contracted with the HMO) were not covered by the insurer at all, meaning that beneficiaries had limited choice of which providers to see. Costs dropped as a result of these plans, but consumer frustration rose, sometimes in very public ways (see Helen Hunt’s outburst in 1997’s Oscar-nominated film, As Good as It Gets). The backlash against HMOs and narrow networks brought about a period where insurance companies began to offer consumers products with more provider choice, and with higher premiums attached.

In an attempt to lower costs associated with ACA marketplace plans, insurers are bringing back narrow networks. A study from fall 2017 found that 75 percent of plans in the 2018 marketplaces were HMOs or exclusive provider organizations (which are similar in structure to HMOs). As in the 1990s, the narrow networks in marketplace plans have been a cause for complaint among consumers. When the ACA was implemented in 2014, there were frequent news stories about high out-of-network costs and there was confusion and anger about patients not being able to “keep their doctor.”

Despite the criticism over lack of provider choice, narrow network plans can have benefits for patients. By limiting a patients’ choice of provider to a small, pre-defined group, those providers may be in a better position to work together in a team to deliver coordinated, patient-focused care. Provider networks could be designed to include only providers that follow evidence-based care protocols or otherwise practice higher-quality medicine. Smaller, pre-defined provider groups can also make it easier for providers to participate in value-based care programs, which often require providers to take responsibility for patients' care over a set period of time and across different settings.

Ultimately, narrow networks are a useful tool in lowering premium costs. A study of the 2014-2016 marketplace found that plans with narrow provider and hospital networks were 16 percent less expensive than those that offered more choice of provider. In the health insurance marketplace, consumers have a choice to make—the choice between lower premiums or broader provider networks. Even in a narrow network, you often can “keep your doctor”—you just may have to pay more to see him or her. The choice is there, but there is always a trade-off.