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Explainer: What You Should Know About Health Insurer Networks, Tiered Coverage

Horizon’s new OMNIA insurance plan spurs healthcare policy debates and legislative action

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When choosing a surgeon, hospital or clinical laboratory, it’s important to know whether the provider or facility is in the patient’s health insurance network.

Those networks are now at the center of two of the most-debated healthcare issues in New Jersey: Should the state pass legislation to curb unexpectedly high out-of-network medical bills? Is the recent introduction of the state’s largest tiered network of health plans a good thing for New Jersey residents?

Here’s what you need to know to understand what health insurers, providers and policymakers are talking about when they talk about health-insurance provider networks.

What they are: An insurer’s provider network is the list of all of the providers (both individual healthcare professionals and facilities) the insurer has contracted with to provide healthcare and treatments care to people insured by that company.

How the networks work: In theory, both insurers and healthcare providers have strong incentives to agree on contracts. Insurers can promise providers with more patients if they agree to be in-network. Therefore, even if the providers agree to be paid less for each service or patient, they can increase their revenue through greater volume.

As in any business negotiation, both sides seek to strengthen their bargaining position. For some providers, remaining outside of the network can actually lead to higher payments. That’s especially true for certain medical specialties, like neurosurgeons, for whom out-of-network payments have substantially outpaced those for in-network providers.

In addition, executives with some for-profit hospitals said they are able to stay in business only if they have option of receiving higher payments by being out-of- network.

Tiered networks: Over time, some insurers decided to sharply limit the number of providers in their networks, a strategy that’s known as having “narrow networks.” The logic for providers to join these networks is the same as for being in any network: Having more patients can more than offset accepting lower payments from insurers.

True “narrow networks” have been rare in New Jersey, in part due to state regulations that specify how thorough each insurer’s network must be.

But another option has become increasingly popular: tiered networks. They’re somewhat similar to “narrow networks,” in that the providers in the lowest-cost tier have accepted lower payments in return for more patients. But they also differ in an important respect, because patients who are insured in a tiered network still have most of their healthcare costs covered by their insurer, even if they visit providers that in a higher-cost tier.

They will, however, have to pay more out of pocket for those providers.

OMNIA: While Aetna, AmeriHealth and Health Republic of New Jersey have employed tiered networks, the issue didn’t receive public attention until the state’s largest insurer, Horizon Blue Cross Blue Shield of New Jersey, announced that it would introduce the most extensive tiered-network plans the state has seen, through its OMNIA Health Alliance.

Horizon has highlighted cost savings for consumers, who would be able to save money both in premiums and in out-of-pocket costs by going to providers in the low-cost Tier 1. The company has also focused on the potential health benefits of having OMNIA providers work closely with the insurer to make sure patients receive high quality, coordinated care.

But OMNIA has proven controversial. Hospitals left outside of the low-cost tier and some elected officials say that Horizon didn’t choose the Tier 1 hospitals in a transparent manner. And they’re warning that some hospitals could close due to the loss of business as people shift to the Tier 1 hospitals.

What the ‘out-of-network bill’ seeks to do: Introduced in May, the Out of Network Consumer Protection, Cost Containment, and Accountability Act, S-20/A-4444, targets the high bills that can occur when out-of-network doctors or hospitals provide emergency or involuntary services.

While state law protects many patients from these bills, patients whose employers self-fund their insurance aren’t protected. In addition, insurers, employers, and consumer advocates argue that these bills drive up the overall cost of insurance.

The legislation would require arbitration to resolve payment disputes; require providers to inform patients about the potential cost of services when they’re scheduled; and create a publicly available index of all in-network healthcare payments, which would be used by arbitrators in settling payment disputes.

Provider groups have criticized the measure, saying that it would amount to state government imposing payment rates through the arbitration process, ultimately diluting the ability of providers to go out-of-network, a strategy that now gives them leverage in negotiating with insurers.

While legislators couldn’t agree on a bill last spring, sponsors Assemblymen Craig Coughlin (D-Middlesex), Gary Schaer (D-Bergen and Passaic), and Troy Singleton (D-Burlington) and Sen. Joseph F. Vitale (D-Middlesex) have said they will revive the legislation this fall.

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