Featured Health Business Daily Story, April 23, 2013

Blues Increasingly Turn to Tiered Networks To Compete in Transparent 2014 Market

Reprinted from THE AIS REPORT ON BLUE CROSS AND BLUE SHIELD PLANS, a hard-hitting independent monthly newsletter on new products, market share, strategies, conversions, financing, profitability and strategic alliances of BC/BS plans. (Not affiliated with the Blue Cross and Blue Shield Association or its member companies.)

By ,
April 2013Volume 12Issue 4

Targeting customers ranging from cost-conscious employer groups to cash-strapped cities, Blue Cross and Blue Shield insurers increasingly are introducing products with tiers of in-network providers. While building tiered or narrowed networks is not a new approach, industry observers tell The AIS Report it especially makes sense as insurers set themselves up to participate in health insurance exchanges and sell products in a more transparent market in 2014 under the health reform law. Insurers seem to be moving toward offering more restricted networks on exchanges, and keeping broader PPO options off exchanges, as a way to manage previously uninsured new enrollees, experts say.

Under the terms of the Affordable Care Act (ACA), health insurers in 2014 must cover pre-existing conditions and essential health benefits, and follow more restrictive premium rate-setting rules. In addition, narrow differences in actuarial values will determine an exchange plan’s “metal” level.

Thus, insurers are “boxed into a corner” since they cannot compete on underwriting and product design as much, says David Shea, health actuary for the Virginia Bureau of Insurance and vice president of the American Academy of Actuaries’ health practice council. “When you think about all the risk-selection elements and pricing removed from the market, where are carriers going to compete? They’re going to compete on their networks. That’s what is left to them,” he says.

Details in setting up tiers vary (see box, p. 3), but many tiered networks are part of broader Blues product sets. For example:

Blue Benefit Administrators of Massachusetts, a subsidiary of Blue Cross and Blue Shield of Massachusetts, recently introduced Select Blue Network for self-funded cities and towns in the state, as well as other self-funded customers. The Massachusetts Blues said March 13 its new option could save employer groups up to 10% in costs by using a “select PPO network of cost-effective, high-quality hospitals, physicians” and other providers. Select Blue’s 54 hospitals and 13,000-plus physicians “meet quality and efficiency guidelines and are low- to moderate cost,” the company says.

Spokesperson Jenna McPhee explains that Select Blue is the Massachusetts Blues’ first narrow PPO network offering available to self-insured employer groups. In addition, the insurer has two tiered network offerings (with PPO and HMO versions) available to all employers, she says.

Blue Cross and Blue Shield of North Carolina has 20,000-plus employees from varying sizes of employer groups enrolled in its two-tiered Blue Select PPO network. The company describes the product, which began coverage Jan. 1, as North Carolina’s first statewide comprehensive tiered network (The AIS Report 3/13, p. 7). The North Carolina Blues also on Jan. 1 launched a narrow network in the individual and small-group markets in targeted urban areas, choosing a single health system for this product in regions including Charlotte and the Research Triangle that have multiple health systems, explains Rebekah Swain, senior product developer.

Urban employers are achieving savings from the narrow network, Swain tells The AIS Report. But she says the Blues insurer is finding that “larger employer groups with spread-out employees like tiered products because everyone has some choices,” and employees benefit from their own decisions about providers.

Highmark Blue Shield said March 21 it will offer a new tiered PPO benefit to groups in nine counties in north-central Pennsylvania starting July 1. Community Blue Premier Flex could save employers up to 20% on premium costs, depending on the group’s current utilization, by offering a benefit design that gives incentives to members to use lower-cost providers without compromising quality, the company says.

Spokesperson Kristin Ash says Highmark’s tiered network is part of a product set that includes a narrow or “select” network for groups and individuals, launched Jan. 1 in 29 counties in western Pennsylvania. The University of Pittsburgh Medical Center is the region’s dominant health system, but UPMC hospitals are mostly out of network except for its rural and specialty facilities where access is an issue. “The quality is on par across our network,” she says. “If the quality is the same, then cost is the differentiator.”

Geisinger Is on More Costly Tier

In north-central Pennsylvania, Highmark says Community Blue members will get richer benefits, or pay less, by choosing hospitals and physicians that provide care “at a more efficient price.” Included in this category are Evangelical Community Hospital, Lewistown Hospital, Mount Nittany Medical Center and Schuylkill Medical Center — but not Geisinger Medical Center.

“Geisinger is in our network, same as always. If you choose to use them, it’s going to cost the [Community Blue] member more money,” and will result in higher premiums for groups, says Leilyn Perri, another Highmark spokesperson. He notes that Highmark has “transparency tools” on its website allowing members to compare estimated costs among providers for various common procedures.

Michael Ferlazzo, a Geisinger spokesperson, responds that he is familiar with Highmark’s Community Blue product. He tells The AIS Report that while Geisinger typically prefers not to comment on specific products, “We do believe customers benefit when more competition is available….In this case, it’s unfortunate the new [Highmark] plan charges them more for using Geisinger physicians,” given the high quality of care that these doctors offer to patients.

“Geisinger obviously will continue to do business as we’ve always done business,” he adds.

The reform-mandated changes coming in 2014 will “put lots of pressure on insurers to lower costs through narrower networks, tiered networks, risk-sharing arrangements,” says Karen Bender, a principal and consulting actuary with Oliver Wyman Actuarial Consulting, Inc. “We probably won’t know all the ways.”

According to Shea, the bottom line is that insurers must compete on efficiency and cost, which is driven by their negotiations with providers. That means leading with a product’s premier tier, in which the insurer tries to negotiate the best rates with providers and preserve quality. “If they exclude providers [from tier one], it probably means they didn’t get the best deal from them,” he says. Blues plans, which have numerous contracts and know markets well, must maintain access, he notes, “but [they] can say, ‘You cost 15% more than the hospital across the street that can do 80% of what you do.’ So, overnight, costs are down by 15%” by excluding that pricier hospital.

In such an environment, “It seems like tiered networks, narrow networks and HMOs will be more prominent on exchanges than off exchanges,” Shea says, primarily due to such plans’ cost savings, utilization and care management features. Insurers “haven’t seen these folks before, so [they] are establishing specialized networks for uninsureds to manage costs,” he explains.

Shea notes that the federal rule on exchanges allows the actuarial value calculator for plans to include tiered networks. The actuary must put in cost sharing and expected utilization for each tier, which Shea describes as a reasonable way to approximate the value of a tiered network.

The underlying problem confronting insurers is that the narrower the network, the less broad its consumer appeal is likely to be, Shea says. Choice of providers is generally greater in a tiered network than in a narrow network, he adds. “It’s a very delicate balance,” he says. “Employers are certainly thinking about saving money — and about employee welfare.”

Consumer education — and insurers’ provision of consumer transparency tools on cost and quality — are key components of tiered and narrow products, says Jennifer Kowalski, a vice president at Avalere Health LLC. “With two tiers, you start to encourage the consumer to look at quality of care and efficiency…and they’ll share in the cost if they choose elsewhere or benefit with lower costs” in the top tier, she says. Consumers will be “more price-sensitive” in an exchange environment than in an employer-sponsored insurance environment, she says, “because they’ll be looking at premiums…and tiers will help keep premiums down.”

“Whether or not plans realize the outcome that they’re looking for from tiered network products will in large part hinge on how well they educate members about decisions they need to make when they choose a provider and what the consequences of those decisions are,” Kowalski says.

© 2013 by Atlantic Information Services, Inc. All Rights Reserved.

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