Limited provider network plans are growing in popularity — and nowhere is this more apparent than in Massachusetts, where Harvard Pilgrim Health Care, Inc. recently said it would begin offering a new limited network plan that could save members 10% on premiums compared with full network plans. Consultants and brokers in the state interviewed by HPW say the plans have garnered interest from many employers and consumers and could grow nationwide as a lower-cost option.

However, the plans are not without controversy. Supporters of the narrow-network plans say they offer small businesses and individuals a lower-cost alternative as premiums continue to rise. But because higher-priced carriers and hospitals typically are excluded from narrow-network plans, some consumers groups worry that members could be negatively impacted by having fewer choices.

The state’s three top insurers — Blue Cross and Blue Shield of Massachusetts, Harvard Pilgrim and Tufts Associated Health Plans, Inc. — all offer either a tiered or limited-network option. A state law that went into effect on Jan. 1, 2011, requires all carriers to offer at least one limited or tiered network option that is at least 12% cheaper than a comparable full-network offering. Under the tiered option, members are free to go to any doctor within a network, but they pay the least in out-of-pocket costs when they go to a provider on Tier 1.

“I think the context is [insurers are] experimenting with different payment methods and networks of providers because of the demand to control costs,” says Bill TenHoor, president of TenHoor & Associates, a strategic planning and market analysis firm based in Duxbury, Mass. “In Massachusetts, pressures are acute due to [Gov. Deval Patrick’s (D)] proposed payment overhaul.” Patrick is trying to get legislators to mandate a switch from traditional fee-for-service payment to a model based on quality of care delivered.

If an insurer had a less “expensive network and contracted in a way to assure some cost control, that could potentially be more attractive to employers and [to individuals because] we have a health exchange,” Tenhoor adds.

Since July 2011, the state has been putting new Commonwealth Care enrollees, those who are uninsured and receive full subsidies, automatically into limited-network plans.

Harvard Pilgrim’s limited provider network, known as Focus Network MA is set to launch on April 1, pending state regulatory approval. By participating in the network, members can cut their premiums by as much as 10% over the full network, without sacrificing benefits or increasing cost sharing for members, Harvard Pilgrim spokesperson Joan Fallon tells HPW. However, providers who agreed to be in the network had to renegotiate lower rates with the insurer.

Fallon says the Focus network is based on the insurer’s existing ChoiceNet plan. Under that program, physicians and providers are grouped into three tiers based on cost and quality performance. Members who go to providers in the lowest tier will pay the least. More than 75% of doctors and hospitals in the plan are in Tier 1, with members allowed access to thousands of doctors across all tiers, according to the insurer.

Focus Network MA is arranged slightly differently in that there aren’t any tier levels, although Fallon says provider payments in both Focus and ChoiceNet are based on risk-adjusted total medical costs for physicians and case-mix adjusted prices for hospitals.

High-Cost Providers Are Excluded

Although Harvard Pilgrim emphasizes the wide array of physicians and hospitals in the Focus Network — more than 16,000 physicians and 60 hospitals — a look at the participating hospitals and networks finds that those owned by Partners Healthcare, which runs Massachusetts General Hospital and Brigham and Women’s Hospital as well as the largest physicians group in the state, is excluded. A report issued by Massachusetts Attorney General Martha Coakley (D) in 2010 found that Partners has some of the highest prices charged to insurers.

However, Fallon says providers that chose not to participate were given a second chance. “Before we made our filing for Focus Network MA, we sent letters 60 days in advance to all providers, including providers who were excluded. This was an opportunity for them to renegotiate lower base reimbursements.”

And Harvard Pilgrim isn’t the only one publicizing its new offerings. In February, Fallon Community Health Plan, the 10th largest insurer in the state with more than 162,000 members, according to AIS’s Directory of Health Plans: 2012, launched a limited product known as Steward Community Care with Steward Health Care System. This will be the main offering of the Retailers Association of Massachusetts’ newly approved group purchasing cooperative. The insurer boasted that the new network offers at least 20% in premium savings compared with broader network Fallon products and can be offered alongside any one of Fallon’s other network options. The insurer also offers a limited network option to all customers, although that product offers only a 12% premium savings compared with the larger network.

TenHoor points out that the arrangement between Fallon, Steward and the Retail Association also has benefitted Fallon by expanding its reach beyond central Massachusetts, where it is based, to the South Shore and other markets where it has not previously had a presence.

Julie Jennings, employee benefits vice president at the Sylvia and Co. Insurance Agency in Dartmouth, Mass., predicts interest in limited and tier plans will grow, although primarily in the small-business segment, because employers could then ask employees if they want to switch to a limited, but cheaper, network. However, Jennings adds that given the climate many employers are operating in, limited and tier plans could become more commonplace among larger employers, too.

“All of our [state] laws encourage a large amount of insurance options. But I think that tiering hospitals [or limiting providers] is something that would happen without legislation” due to the economic environment.

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