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Health and Benefits

Reducing Costs with Narrow Network Health Insurance: What Employers Need to Know

Rising health insurance costs continue to burden businesses with increasing overhead expenses. The trend is likely to accelerate as a result of the Covid-19 pandemic.

Premiums for employer-sponsored health plans have steadily increased from 1999 to 2018, more than doubling their costs in the 20-year span. Large employers expected to see a 5- or 6-percent increase in 2020 before Covid-19 struck.

Now, Covered California is projecting premium increases of 4 to 40 percent for employer-sponsored plans nationwide this year — and filings with the District of Columbia support those numbers. Aetna and United Health have asked regulators to approve increases of 7.4, 11.4, 17.4 and 38.0 percent for various plans in the District.

In light of this trend, more and more businesses are turning to narrow network health insurance plans as one way to mitigate rising premium expenses. These plans were fairly uncommon when premiums were much lower. But 18 percent of large companies (i.e., 5,000-plus employees) offered a narrow network plan in 2018. While fewer smaller companies offered these plans, many smaller companies are following the lead of larger employers and are beginning to turn to these plans as a cost-mitigation strategy.

If your business is looking to mitigate the rising costs of health insurance, a narrow network health insurance plan can be the solution. When used appropriately, a narrow network health insurance plan can effectively address rising health insurance costs for both employers and employees. The following are some of the most common questions businesses have about these plans.

What Are Narrow Network Health Insurance Plans?

Narrow network health insurance plans limit provider choice. They are defined by a narrow network of healthcare providers. A narrow network may include physicians, specialists, hospitals, urgent care clinics and other medical providers; it just doesn’t have as many options as a broad network plan. While there isn’t a universal mark for exactly what constitutes a narrow network, all of these plans are more restrictive than their broad network plan counterparts.

In restricting the provider networks, narrow network health insurance plans are similar to health maintenance organizations (HMOs). HMOs commonly also have more restrictive lists of in-network providers.

Are Narrow Network Health Insurance Plans Compliant with the Affordable Care Act?

Not only are narrow network plans generally compliant with the Affordable Care Act (ACA), but they have long been a primary component of the ACA’s cost-controlling strategy.

When the ACA adopted marketplace exchanges back in 2014, approximately 70 percent of the health insurance plans made available through the exchanges were either narrow network or ultra- narrow network plans. These types of plans continue to dominate the individual marketplace today, accounting for 72 percent of marketplace plans in 2019. (For the 2014 survey, a narrow network health insurance plan was defined as a plan where 30 percent of a region’s 20 largest hospitals did not participate in the plan.)

Just as the ACA marketplace exchanges can offer narrow network health insurance plans, an employer can generally offer these plans without worrying about non-compliance penalties. Many narrow network health insurance plans meet all of the ACA requirements. A health insurance professional who has experience with these types of plans can make sure that your business chooses an ACA compliant plan.

How Do Narrow Network Health Insurance Plans Help Control Employers’ Health Plan Costs?

Narrow network health insurance plans help mitigate costs by prioritizing cost, while also ensuring that plan participants have adequate access to healthcare.

First and foremost, narrow network health insurance plans limit the providers that the plan works with. This is often done by lowering reimbursement rates for providers. This results in limiting in-network providers to those providers willing to accept the plan’s rates. In most cases, much more affordable coverage is secured.

Second, these plans usually provide very limited or no coverage for out-of-network claims, which are generally more expensive. By limiting out-of-network coverage, a narrow network health insurance plan can hold costly out-of-network claims in check. In comparison, a plan that offers more out-of-network coverage would have to pay more for these often-expensive claims.

Third, these plans tend to not require primary care referrals for specialist visits. This is a point of distinction between narrow network plans and HMOs, which usually do require referrals. The savings is not insignificant. Even though a single referral visit might not result in a huge claim, the cumulative savings across all participants is substantial when these claims are eliminated.

Results of These Reasons

For these reasons, a narrow network health insurance plans reduces the cost of healthcare. As a result, an insurance company that offers narrow network health insurance plans is generally able to charge lower premiums.

An alternative for cost mitigation is to require its employees to pay a larger share of premiums. However, this is no way to engender employee satisfaction and usually is not the best option. Thus, a narrow network plan is seen by many business leaders as a better cost-mitigation tool.

Narrow network health insurance plans available through marketplace exchanges can save individuals and families about 16 percent on their premiums. Detailed data on employer savings isn’t as readily available because businesses have adopted these plans at a slower pace than individuals. But businesses can normally expect to see their costs drop when adopting a narrow network health insurance plan.

The best way to determine the savings that your business can realize by implementing a narrow network health insurance plan is to engage an insurance professional to conduct an analysis based on your specific situation and plan details. An insurance professional familiar with narrow network and broad network health insurance plans can assist with completing an analysis.

How Do Narrow Network Health Insurance Plans Help Control Employees’ Health Plan Costs?

Employees likewise benefit from the lower premiums that narrow network health insurance plans offer. Unless an employer keeps the savings to itself, employees can expect to pay less for a narrow network health insurance plan than they would for a broad network health insurance plan.

Additionally, as discussed above, an employee does not need a primary care physician referral in order to see a specialist. An employee’s copay may be only $30 or $50 for a single referral. If the employee needs multiple referrals to specialists in a year, though, the savings can add up to hundreds of dollars. This can be an especially valuable to patients that have complicated health issues and families that have multiple people who need to see specialists.

Do Narrow Network Plans Provide Sufficient Access to Coverage?

While narrow network health insurance plans generally meet ACA requirements and usually provide adequate coverage for most employees, they do have limited networks of providers. An employer might find that it has some employees whose coverage needs are not sufficiently met by a limited healthcare network.

For example, some narrow network health insurance plans may not have certain specialists in-network within a given region. This can create an issue for employees who need to see out-of-network specialists and pay for the specialized care out of pocket as a result.

How Do Narrow Network Health Insurance Plans Fit Into Tiered Plan Structures?

To address the risk of insufficient network coverage, some businesses turn to a tiered plan structure. Tiered plans consist of two or more different health insurance plans. One of these plans is a narrow network health insurance plan, and another is a broad network health insurance plan.

With a tiered plan, employees can select and pay for whichever level of coverage best suits their situation. Those who don’t need extensive coverage can save on premiums by selecting the narrow network option. Those who need more extensive coverage can procure it through the higher-priced broad network health insurance plan.

A tiered plan might not save businesses as much as a strict narrow network health insurance plan could since some employees will likely opt for the more expensive broad network health insurance plan. Nonetheless, this structure is an effective way to reduce health plan premiums while still meeting employees’ needs.

In addition, a tiered network plan can reduce the risk of over-insuring some employees, since employees can tailor their plan selection to their individual needs.

What Other Challenges Come with Implementing Narrow Network Health Insurance Plans?

The limited healthcare provider networks of narrow network plans might create a few challenges during implementation of a plan. However, each of these can be addressed with a well thought-out implementation.

First, employees may not even know the providers who are in their current healthcare network or realize how the list of in-network providers will change. A 2015 study found that 44 percent of people who purchased health insurance for the first time weren’t aware of the providers who were in their network. Often, some people never bother to find out.

To address this concern, human resources representatives can educate employees on the providers in a narrow network (or even a broad network) during open enrollment. This is a best practice regardless of whether a business offers a narrow network health insurance plan or a different type of plan.

Second, some employees might discover that their current providers are not in their employer’s new narrow network health insurance plan. This is a challenge that may be managed by helping employees find new providers who are in-network. It’s generally not an issue after implementation, once employees have made any necessary provider changes. Also, employees who are unwilling to change providers can stay with their current providers by paying the out-of-network costs.

Third, some plans may lack providers in certain specialties. This should be kept in mind as businesses evaluate plan options, and it’s a good reason to consider a tiered plan structure (see Tiered Plan Structures).

Fourth, some employees who need specialized medical care may have to drive long distances for appointments and procedures. Businesses can accommodate employees who are in this situation by offering more paid sick leave. HR representatives can remind employees that a mileage deduction for medical-related driving is available if employees meet certain requirements. The medical mileage deduction for 2020 is 17 cents per mile.

Can Narrow Network Health Insurance Plans Be Paired with Health Savings Accounts?

Health savings accounts (HSAs) are tax-advantaged savings accounts that can be used for medical expenses. These accounts can only be set up in conjunction with high deductible health plans (HDHPs), which meet specific deductible and limit requirements as defined by the IRS.

For 2020, HDHPs must have deductibles of at least $1,400 for individuals or $2,800 for families. Their maximum out-of-pocket limits cannot exceed $6,900 for individuals or $13,800 for families.

HDHPs and narrow networks technically refer to different aspects of health insurance plans. However, the two features are frequently used in conjunction to mitigate costs. Thus, many narrow network plans are HDHPs and can have HSAs associated with them.

Having an HSA option can be helpful when introducing narrow network health insurance plans to employees. Businesses that haven’t yet switched to an HDHP can highlight the HSA as a beneficial feature that can help with both in-network and out-of-network costs. Businesses that already have an HDHP option can remind employees of the HSA feature, potentially using it to quell concerns about increased out-of-network costs.

Do Narrow Network Health Insurance Plans Have Broad or Narrow Pharmacy Plans?

Narrow network health insurance plans can be paired with either broad or narrow pharmacy plans. Choosing these two elements separately gives employers greater ability to adjust their health and pharmacy plan offerings to their budgets and their employees’ expectations.

How Can Employers Find a Narrow Network Health Insurance Plan?

For help exploring narrow network health insurance plan options, contact RMC Group. As experienced professionals in the industry, our team can perform a provider audit to compare your current plan’s in-network providers to those who participate in a narrow network. We’ve assisted multiple businesses throughout the country with narrow network health insurance plans, and we’re ready to help yours too.