Pros, Cons, and Regulatory Policies for Tiered Health Insurance Networks

Symposium examines issues behind controversial Horizon Blue Cross Blue Shield coverage plan

Linda J. Schwimmer, president and CEO of New Jersey Health Care Quality Institute
Health insurance plans with additional network restrictions are becoming an increasingly popular option for businesses looking to curb rising employee costs — and for patients who want to reduce what they spend out of pocket. These so-called tiered or narrow-network plans have also prompted confusion among some consumers and pitted medical providers against one another in a quest for market share. In the Garden State, the controversy has centered on Horizon Blue Cross Blue Shield of New Jersey’s OMNIA, launched earlier this month.

In a nutshell, narrow networks — which include tiered plans — benefit consumers by charging lower copays and contributions, in exchange for less patient flexibility when it comes to choosing doctors or hospitals. Healthcare providers that agree to participate in these restricted networks, or in the least expensive tier, accept lower rates of reimbursement for their services from the insurance company, but are guaranteed a certain volume of patients.

Government regulators are now struggling to keep pace with the changes and ensure that these plans properly protect patients and remain inexpensive — without risking the financial health of medical providers who might lose patients, and their insurance reimbursements, to other doctors and hospitals. And according to those involved, some states have found themselves further bogged down by outdated regulations, dwindling staff and a lack of other resources.

“Consumers have shown a willingness to trade choice for price,” said Joel Ario, a former insurance commissioner in Oregon and Pennsylvania who also ran the Office of Health Insurance Exchanges in the federal Department of Health and Human Services.

Ario, now a consultant with Manatt Health Solutions, gave the keynote address at a symposium on narrow networks Thursday, discussing the role regulators play in shaping insurance products, protecting patients and aiding consumers as they wrestle with the complex process of selecting health insurance. “People know a lot more about this than they did five years ago, but the average person is still very confused,” he said.

This widespread confusion prompted Linda Schwimmer, the President and CEO of the New Jersey Health Care Quality Institute, to plan Thursday’s “Fear of Tiers” symposium at Princeton University. The discussion involved state and national regulators, academics and hospital and insurance industry representatives — but almost no mention of OMNIA itself, or what panel participant Sen. Joseph Vitale(D-Middlesex) called “the O-word.”

“OMNIA is what sparked all the attention and is why the conference was so popular, but the issue is much bigger than OMNIA,” Schwimmer, said by email after the event, which drew several hundred. “This is about the survival of the (Affordable Care Act) and a functioning private healthcare system. Benefits need to be affordable. People need to understand what they are buying

The goal was to discuss the “trade-offs between broad choice and cost savings,” she said, and explore how government, industry, and providers can work together to protect patient care, assist consumers with purchasing decisions, and support the hospitals — and surrounding communities — that lose patients to other facilities. The controversy around OMNIA itself and the battle between the “winners” and “losers” distracted people from the larger picture, she added.

A Horizon spokesman said on Friday the plan was enjoying “positive consumer response,” but said it was premature to offer enrollment numbers; the plan launched to the public in January and, at one point, Horizon predicted it might attract 250,000 patients, including 40,000 who hadn’t been able to afford coverage before. To reduce costs, OMNIA struck a deal with certain healthcare providers to reimburse them at a lower rate in exchange for listing them in a preferred tier, with a larger pool of patients. Providers receive additional financial incentives for meeting other requirements designed to keep patients healthy, which in turn keeps costs down for Horizon. OMNIA members benefit from a lower-cost plan, but trade the freedom to see any doctor they chose.

[related]Despite the clamor for low-cost insurance — and the past existence of similarly restrictive plans — OMNIA’s dawn last fall sparked varied concerns. Patient advocates worried the restrictions would result in hidden charges, or even delay critical care. Some 17 hospitals not included in the preferred tier challenged Horizon’s process for assigning tiers, but the state declined to block the rollout. Another filed a lawsuit, saying its exclusion from the first tier violated a contract it had with the insurer to care for other Horizon patients.

Vitale and Sen. Nia Gill (D-Essex) proposed legislation to make the insurance company’s selection process more transparent and block any other tiered products from coming online for a year, until state regulators could review the issue in more detail. On January 12 they reintroduced several of these bills; one calls for specific standards for tiered plans, another seeks to protect safety-net hospitals, like University Hospital in Newark, by ensuring they are included in a preferred tier.

“The Achilles heel of the ACA is that health-insurance premiums and healthcare out-of-pocket costs for many people are unaffordable. The narrowed and tiered networks are trying to address that issue, but there should be consideration of how to do it right so we don’t end up with the kind of backlash we had against HMOs in the 1990s,” Schwimmer said.

Several speakers agreed that these tiered plans have already generated significant frustration for everyone involved — especially for an individual faced with choosing the right plan. “For consumers who are trying to work their way through this issue, it’s nuts,” Vitale, longtime chair of the Senate Health Committee, said Thursday.

Former state Health Commissioner Heather Howard, now Director of the State Health Reform Assistance Network at Princeton University, noted that citizen advocates also play a critical role in driving patient protections. Their pressure can help government regulators focus on emerging problems, she said, recalling a lawsuit filed by HIV patients in Florida who claimed an insurance company’s restrictions on medication violated their civil rights.

New Jersey is in a better situation than many states when it comes to consumer and patient protections, according to Ward Sanders, president of the New Jersey Association of Health Plans. The Garden State has a history of “muscular regulatory policy,” he said, “so we are not starting with a blank slate” when it comes to regulating new tiered products.

Sanders said the state already has strict standards for key indicators, like how far a patient must travel to access care and what specialists are available. He supports additional protections against surprise bills from out-of-network providers — when hospital patients are billed for consultations with non-network doctors, for example — but cautioned the audience Thursday not to forget how over-regulation drove many auto insurance companies from the state years ago.

The growth of tiered health insurance products is particularly complex for trade organizations that represent the hospitals and doctors who fear becoming locked in a competition for patients. “We’ve wrestled with the issue of having so-called winners and losers on both sides,” Elizabeth Ryan, President and CEO of the New Jersey Hospital Association, said Thursday. She said that after the OMNIA debate “we did what trade associations do so well: We formed a task force” that identified key policy principles, including protecting patients from excessive emergency costs and making insurance companies provide more details on these plans and their creation.

Larry Downs, CEO of the Medical Society of New Jersey, recalled a similar dilemma Thursday. NSNJ faces an “inherent tension” with any physician-ranking process, he said, so it is important that the criteria in any tier designations is clear to everyone involved. “We just want it done fairly,” he said.