Are employers ready to limit workers' choice of doctor?

June 3, 2013
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I have a new story out in today’s print edition of IBJ that advances a counter-intuitive notion—at least for the world of health care—that the hospital building boom of the last decade could actually lead to lower costs in the future.

That’s because Indianapolis-area hospitals, which used to each dominate a separate territory in the metro area, have now built in one another's back yards. And that has diluted their bargaining power with health insurers.

Insurers are clearly willing to leave hospitals out of their networks if those hospitals don’t play ball on better pricing. If you doubted that before, just check out the health insurance plans recently approved to be offered on the health insurance exchange in California.

According to the Los Angeles Times, all 13 of those plans exclude the renowned—but very expensive—Cedars-Sinai Medical Center in Los Angeles. And all but one of the plans exclude the UCLA Medical Center. (The one exception was Anthem Blue Cross, the California subsidiary of Indianapolis-based WellPoint Inc.)

But the real test of these so-called narrow networks will come not with the Obamacare exchanges, which cater to individuals, but with employers, who control a far bigger slice of the health benefits pie.

Especially in Indiana, employers have been highly reluctant to limit their workers' choice of hospitals and doctors. HMOs, which were built on narrow networks of health care providers, never gained nearly as much traction here as in other states.

Even when Hoosier employers did offer HMO plans, they often did things that muted their impact, say two veterans of the movement in Indiana, Alex Slabosky and Dave Kelleher. If employers react the same way to this latest version of narrow network plans, those narrow-network plans will probably attain the same limited penetration they did in the 1980s and 1990s.

First of all, few Hoosier employers ever offered an HMO plan as its exclusive health plan to its workers. Most of them offered an HMO as one option among two or three. The most common competing plan was Anthem’s, which featured a broad network of hospitals and doctors.

“One of the big issues was that Anthem could go in and say to an employer, 'We have every doctor and every hospital',” said Slabosky, who was CEO of the M-Plan HMO for nearly 20 years.

A second impediment for HMOs came from the fact that most employers applied the same employee cost-sharing formula to HMO plans as they did to Anthem’s PPO plans or other plans. So if the HMO plan held costs down low enough to offer a 20-percent discount on premiums, if the employer made employees pay only 10 percent of the total premiums, the HMOs price savings was only a 2 percentage point difference to en employee.

For many, it was worth a slightly higher premium to get the additional choice of doctors and hospitals.

“The narrow networks worked real hard to control costs,” Slabosky said. “But in many cases, many cases, with the big employers, they negated the difference with their contributions.”

Kelleher, who was part of the founding team at Metro Health in the 1970s, which offered a prepaid health plan based on a limited network of clinics, noted that fewer employers today offer multiple health plans to their employees. And that may give narrow networks an advantage they didn’t enjoy 20 years ago.

“I don’t see the appetite coming back for multiple offerings,” said Kelleher, who now directs the Employers Forum of Indiana.

But he still has some skepticism that narrow networks will take hold. That's because, even with hospitals' expanded geographies, there still is no single hospital system that perfectly covers the entire metro area. Speaking of employers, he said,  “They still have to face employee pushback.”

  • Narrow Networks
    I don't think the narrow networks are being developed for group market. I think they are for the exchange market. Indiana is predicting 1 million Hoosiers to take out an exchange policy. With these premiums being subsidized, people may be Ok with only one hospital network.
  • IU Health
    IU Health employees already have this issue. We can only use IU Health physicians, pharmacies, etc.

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  1. to mention the rest of Molly's experience- she served as Communications Director for the Indianapolis Department of Public Works and also did communications for the state. She's incredibly qualified for this role and has a real love for Indianapolis and Indiana. Best of luck to her!

  2. Shall we not demand the same scrutiny for law schools, med schools, heaven forbid, business schools, etc.? How many law school grads are servers? How many business start ups fail and how many business grads get low paying jobs because there are so few high paying positions available? Why does our legislature continue to demean public schools and give taxpayer dollars to charters and private schools, ($171 million last year), rather than investing in our community schools? We are on a course of disaster regarding our public school attitudes unless we change our thinking in a short time.

  3. I agree with the other reader's comment about the chunky tomato soup. I found myself wanting a breadstick to dip into it. It tasted more like a marinara sauce; I couldn't eat it as a soup. In general, I liked the place... but doubt that I'll frequent it once the novelty wears off.

  4. The Indiana toll road used to have some of the cleanest bathrooms you could find on the road. After the lease they went downhill quickly. While not the grossest you'll see, they hover a bit below average. Am not sure if this is indicative of the entire deal or merely a portion of it. But the goals of anyone taking over the lease will always be at odds. The fewer repairs they make, the more money they earn since they have a virtual monopoly on travel from Cleveland to Chicago. So they only comply to satisfy the rules. It's hard to hand public works over to private enterprise. The incentives are misaligned. In true competition, you'd have multiple roads, each build by different companies motivated to make theirs more attractive. Working to attract customers is very different than working to maximize profit on people who have no choice but to choose your road. Of course, we all know two roads would be even more ridiculous.

  5. The State is in a perfect position. The consortium overpaid for leasing the toll road. Good for the State. The money they paid is being used across the State to upgrade roads and bridges and employ people at at time most of the country is scrambling to fund basic repairs. Good for the State. Indiana taxpayers are no longer subsidizing the toll roads to the tune of millions a year as we had for the last 20 years because the legislature did not have the guts to raise tolls. Good for the State. If the consortium fails, they either find another operator, acceptable to the State, to buy them out or the road gets turned back over to the State and we keep the Billions. Good for the State. Pat Bauer is no longer the Majority or Minority Leader of the House. Good for the State. Anyway you look at this, the State received billions of dollars for an assett the taxpayers were subsidizing, the State does not have to pay to maintain the road for 70 years. I am having trouble seeing the downside.