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Insurers Widen Profits by Narrowing Choice of Doctors

November 22, 2013

During the run-up to the passage of the Affordable Care Act in 2010, Americans were introduced to a dictionary of terms used by health insurers to maximize their profits by denying or dropping coverage for the costliest customers. For example, a "pre-existing condition" allowed the insurance companies to reject millions of potentially sicker applicants--as many as one in five--out of hand. The carriers also turned to "purging," forcing high-cost customers off their rolls by catapulting their monthly premiums to levels well beyond anything they could afford. And the disgusting practice of "rescission" enabled insurers to cancel coverage for hundreds of thousands of policyholders after they became ill.
But now that the ACA has banned these and other of the worst practices, the insurance industry has added a new scheme to its playbook. As the Washington Post explained this week, the carriers are keeping their profits up by "narrowing" your choice of doctors and hospitals.
As the Post suggests, narrowing is rapidly becoming a four-letter work for Americans turning to the new health care exchanges to purchase insurance for 2014. Shoppers are discovering that "insurers are restricting their choice of doctors and hospitals in order to keep costs low, and that many of the plans exclude top-rated hospitals":

In one closely watched case, Seattle Children's Hospital has filed suit against Washington's insurance commissioner after a number of insurers kept it out of their provider networks. "It is unprecedented in our market to have major insurance plans exclude Seattle Children's," said Sandy Melzer, senior vice president...
A number of the nation's top hospitals -- including the Mayo Clinic in Minnesota, Cedars-Sinai in Los Angeles, and children's hospitals in Seattle, Houston and St. Louis -- are cut out of most plans sold on the exchange.

In state after state, insurers are forcing their customers to give up nearby hospitals and preferred physicians. For carriers new to some markets, that quandary may just reflect the time it takes to build to construct a provider network from scratch. But for many others selling policies on the exchanges, that flaw is a feature, not a bug.
In Seattle, Premera Blue Cross, Washington's leading carrier, decided not to include the children's hospital as an in-network provider except in cases where the service sought cannot be obtained anywhere else. Citing the higher cost of a teenage appendectomy at Seattle Children's, Premera spokesman Eric Earling said:

"Children's non-unique services were too expensive given the goal of providing affordable coverage for consumers."

But as a recent report from Seattle's King 5 TV revealed, Premera's narrowing just happened to include most of the premier institutions in the state:

Teresa wrote, "...the following hospitals are OUT OF NETWORK providers for Premera's Exchange plans: Swedish Hospital, University of Washington Medical Center, Providence Hospital, Harborview and Seattle Cancer Care Alliance..."
Other shoppers on the exchange say even if they stay with the same insurance company they have now, they would be forced to switch doctors.

Washington State Insurance Commissioner Mike Kreidler described how insurers are keeping their costs down and profits up by making it less likely customers will actually use the health care they thought they were paying for:

"We are seeing some of the health insurers now, narrowing down their network, of who are their 'in network' doctors and hospitals.
One of the ways they work in the exchange to hold down costs is to have narrower networks. Most of the carriers wound up doing that, meaning that they were much limited as to which hospitals and doctors would be participating in the 'inside the exchange' plan."

Elsewhere, the story is much the same. In Missouri, "BJC Healthcare, which is Missouri's largest health provider, is likely to be excluded from most policies sold on the state's new health insurance exchange." In New Hampshire, almost all of the 40,000 people buying individual policies in the Live Free or Die state purchase them from Anthem BlueCross BlueShield, which also happens to be the only insurer selling coverage in the New Hampshire exchange. And none of those plans pay for care at Concord Hospital, the largest in the state. As the Concord Monitor reported:

"Anthem built the so-called narrow network in an effort to keep costs down for the plans it will sell on the new state insurance marketplace."

But away from the exchanges where insurers don't have to compete as visibly for customers, the physician and hospital networks can become less narrow. For a price, that is. The insurers' "exchange-skipping" delivers a double-whammy to consumers. Those policies purchased directly from the carriers come with a higher price tag and no federal subsidies for those who qualify for them on the exchanges. As a McKinsey analysis found, "About a third of insurance companies opted out of participating in the exchanges in states where they were already doing business." In Oregon, where the number one insurer Regence BlueCross BlueShield stunned state officials and residents by bailing on the exchange there, the rationale behind the decision was no mystery:

"Regence is just trying to game the system and play politics in the hopes that the exchange goes down; it's quite obvious that they're setting themselves up to compete by not participating in the exchange and not gamble on a risky population that they can't predict," according to people familiar with the marketplace.

Of course, in the media, insurers' slashing of doctors and hospitals is all President Obama's fault. As Time magazine warned, "'You Can Keep Your Doctor': Obamacare's Next Broken Promise?" For Obamacare critic Bob Laszewski, limiting physician networks is just insurers doing what insurers always do:

With the Affordable Care Act, health plans lost two of their historically big plan pricing variables; medical underwriting and plan design.
Under Obamacare, insurers can no longer underwrite, or exclude people, to keep the cost of their individual market health insurance plans down--a good thing...
Some health plans are only offering narrow networks on the new health insurance exchanges. Health plans, figuring that a great many of the new exchange customers will be coming from the ranks of the uninsured have decided to craft plans that largely include providers located where many of these uninsured people live and where they are most likely to get their health care anyway--perhaps not as big a deal for these folks who, because they are uninsured, don't have a regular provider relationship. But it also means these people will not have access to some of the most respected centers of excellence if they have a serious illness...
As a result, if you want a wider network plan, any cost difference for that plan becomes the responsibility of the consumer.

Consumers like Seattle's Jeffrey Blank, whose daughter Zoe has a rare bone disorder. When Premera dropped Seattle Children's Hospital from his provider network, Blank is leaning towards paying Premera $400 a month more to keep her doctors rather than switch carriers or get lower-cost insurance without her doctors on the Washington state exchange. While Premera said it will consider as in-network service "unique" treatments available only at Children's, it will make those decisions on a case-by-case basis.

"What if Zoe has to be hospitalized? What then?" Blank said. "I should have a plan that is in network, to be prepared. As wonderful as the Affordable Care Act has been for us, it's like, how did this happen?"

What happened is that he, like hundreds of thousands of Americans, got "narrowed" so his insurance company could widen its profits.


Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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