Report: Narrow Networks Reduce Costs

A new study finds narrow health networks can help reduce healthcare costs without impacting the quality of care patients receive.

The data, published this month in a working paper by the National Bureau of Economic Research, followed Massachusetts state employees’ healthcare costs after the state in 2012 introduced incentives designed to encourage workers to choose narrow-network health plans.

Researchers found that about 10% of workers took advantage of a 3-month “premium holiday” incentive for switching to a plan with a smaller network. As a result, overall healthcare spending by the state insurance program dropped by about 4.2%.

However, total healthcare spending by those employees that switched fell by 36%, according to the study, despite increased spending on primary care. In other words, the entirety of the cost savings came from reduced specialist and hospital-care costs. Those reductions came both from reduced quantity of procedures and lower prices.

That’s good news for patient health, the authors said.

“Falls in emergency room and hospital spending suggest that any reduction in physician access through network limitations did not cause an increase in use of tertiary care, and there is no evidence of any deterioration along measures of hospital quality.”

The authors do, however, note a number of caveats. For one, the people who are most healthy tend to be most likely to be price sensitive, and thus willing to switch to a low-cost narrow-network plan. That fact could have caused the savings numbers to skew higher.

They also found narrow networks are less convenient.

“We find that distance traveled falls for primary care and rises for tertiary care, although there is no evidence of a decrease in the quality of hospitals used by patients,” they wrote.

However, those longer journeys are critical to lowering costs. The cost savings did not hold up when patients on limited network plans continued to see primary care physicians outside of their networks.

The authors say that fact suggests plans that are too restrictive in their network size may not achieve the overall cost savings.