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. With Pence running the ship good luck with a new government building on the site. He does everything on the cheap except unnecessary roads line a new beltway( like we need that). Things like state of the art office buildings and light rail will never be seen as an asset to these types. They don't get that these are the things that help a city prosper.

  2. Does the $100,000,000,000 include salaries for members of Congress?

  3. "But that doesn't change how the piece plays to most of the people who will see it." If it stands out so little during the day as you seem to suggest maybe most of the people who actually see it will be those present when it is dark enough to experience its full effects.

  4. That's the mentality of most retail marketers. In this case Leo was asked to build the brand. HHG then had a bad sales quarter and rather than stay the course, now want to go back to the schlock that Zimmerman provides (at a considerable cut in price.) And while HHG salesmen are, by far, the pushiest salesmen I have ever experienced, I believe they are NOT paid on commission. But that doesn't mean they aren't trained to be aggressive.

  5. The reason HHG's sales team hits you from the moment you walk through the door is the same reason car salesmen do the same thing: Commission. HHG's folks are paid by commission they and need to hit sales targets or get cut, while BB does not. The sales figures are aggressive, so turnover rate is high. Electronics are the largest commission earners along with non-needed warranties, service plans etc, known in the industry as 'cheese'. The wholesale base price is listed on the cryptic price tag in the string of numbers near the bar code. Know how to decipher it and you get things at cost, with little to no commission to the sales persons. Whether or not this is fair, is more of a moral question than a financial one.