Narrow Networks


Narrow networks return with promise of cost control—and backlash.

By Jerome Connolly, PT, CAE
July 7, 2014

Provider networks are anything but a new phenomenon in the insurance industry. Payers have been engaging preferred providers for decades dating back to the managed care era. Consumers have had to factor in provider availability and coverage when selecting a health plan if they were involved in such a selection process. This process of consumer choice has been magnified by the adoption of the individual mandate included in the Affordable Care Act (ACA). Likewise, once the initial choice is made, patients must make decisions at the time a health care need emerges—do I stay in network and pay less or choose to incur higher out-of-pocket expenses by accessing an out-of-network provider? Often, this is when they discover their provider of choice is not in the insurer’s network.

Although narrow networks in the 1990s did help moderate health care costs, their return is causing a consumer backlash and some officials are concerned that they will prevent patients, especially those with chronic illnesses, from receiving necessary care at low costs.1

New Network Strategies

To compete on premium price in a post-health care reform market, insurers believe they must once again reduce the amount they pay providers for services delivered to members.

Accordingly, payers have been increasingly turning to these controversial narrow provider networks to find the most cost-efficient (low-cost) providers or offering provider rebates linked to the medical-loss ratio standards to which insurers must now adhere.2

Under the first narrow network implementation strategy, payers contract with the lowest-cost providers and focus entirely on cutting unit cost. The American College of Physicians (ACP) criticized this approach and proposed new standards to assess provider network adequacy, including patient-to-physician ratios and use of out-of-network providers as indicators of access. Moreover, the ACP said insurers should be required to explain why they drop providers from their networks.3


The second—and one might say more contemporary—network narrowing strategy involves insurers offering payment incentives to limited-network providers for meeting quality measures and delivering care below the insurer’s required medical-loss ratio target. This strategy addresses both unit costs and quality of care.

While moving away from open provider networks may curb costs, insurers must balance narrow networks against consumer needs for health care access and provider choice. Up to this point, the evidence shows willingness amongst health insurance marketplace shoppers to accept less provider choice in exchange for lower premiums.4

A case in point occurred when Anthem Blue Cross Blue Shield was challenged for dropping nine New Hampshire hospitals from its individual market provider network, and the company said that 90 percent of Anthem’s customers had no problem with the network reduction.5

Consumers Are Undecided

However, the public’s view of narrow networks is mixed. A recent Kaiser Family Foundation poll revealed that overall, more Americans prefer costlier, wide-network health insurance plans over cheaper, narrow network products, but the reverse is true for potential customers seeking insurance through exchanges.6 This finding is complicated by the ACA’s continued unpopularity, as nearly half of Americans blame the reform itself for rising health care costs. Of course, rising premiums and health care costs prior to 2010 were commonplace.

In the poll, 51 percent of respondents told researchers they would rather have a plan that costs more, but lets them see a wide range of providers, while 37 percent prefer a cheaper plan that limits provider choice.

Older and wealthier respondents expressed a clearer preference for costlier, open-network plans, while younger and poorer adults were more evenly divided in their preferences. In addition, 55 percent of respondents with employer-sponsored health insurance prefer broad networks, the poll found.

However, individuals who are either uninsured or buy their own coverage more often preferred to save money in exchange for less provider choice. Preferences for narrow network plans did dip to 35 percent when these respondents learned they would not have full coverage for visiting their usual doctors and hospitals.

Subsequent questions revealed another opinion shift: More people are willing to accept a narrow network if they can save up to 25 percent on their health care costs. In view of these savings, those who favored broad-network plans dropped from 35 to 22 percent of uninsured respondents and those who buy their own coverage; a significant finding in the context of the ACA’s individual mandate.

A report by McKinsey & Company in December 2013 found that insurance products comprising narrower hospital networks correlated with lower premiums. In fact, the use of broader hospital networks resulted in a median premium differential of 26 percent.7

Hospitals and insurers argue that consumers will be making choices based predominantly on costs and therefore narrow networks must be part of the equation.

Suspicion of Cherry Picking

However, some suspect insurers are employing narrow networks as a strategy to discourage expensive consumers from enrolling, not just to keep costs low. The reform law prohibits insurers from denying coverage to people with pre-existing conditions, but those consumers are likely to opt for plans with access to a wide selection of providers to care for their chronic conditions rather than plans with narrow networks, according to a New York Times article.8

According to Mark Rust, the chairman of the national health law practice at Barnes & Thornburg, “if a health plan has a narrow network that excludes many doctors, that may [dissuade] patients with expensive pre-existing conditions who have established relationships with doctors. Some insurers do not want those patients who, for medical reasons, require a broad network of providers.”8

States Respond

Consequently, some states have begun fighting insurers that offer health plans with narrow networks, and in some cases, taking regulatory action, introducing legislation, and even filing lawsuits.

Maine regulators, for example, prohibited Anthem Blue Cross Blue Shield from transferring some members into its narrow network plan sold on the exchange that excluded six of the state’s hospitals.

In Washington, Insurance Commissioner Mike Kreidler banned several insurers from its exchange (marketplace) because of inadequate provider networks. Although he later allowed two of those banned insurers into the exchange, Seattle Children’s Hospital sued Kreidler, claiming the plan will prevent some patients from receiving care at the hospital.

Meanwhile, in response to Anthem Blue Cross Blue Shield of New Hampshire’s exchange plan that excludes 10 of the state’s hospitals, New Hampshire lawmakers have written legislation that would force insurers to expand their networks.

At least two states (Mississippi and Nevada) have enacted or are intending to enact regulations pertaining to network adequacy, which also suggests that the old managed care battles of two to three decades ago could be resurfacing.

The Mississippi Department of Insurance adopted a final regulation that establishes standards for the creation and management of networks by health carriers and sets forth requirements to assure the adequacy, accessibility, and quality of health services offered under a managed care plan.

The Nevada Commissioner of Insurance has issued an initial draft of regulations intended to establish provisions governing the issuance of network plans. This would include requiring a carrier applying to the Commissioner for the issuance of a network plan to establish that the network plan has an adequate number of providers in each category of health care necessary to serve its members in each geographic service area to which the network plan will be applicable. The initial notice mentions a variety of professional services including mental health, but the draft does not include physical therapy.9

In a return to the battles of decades gone by, lawmakers in South Dakota, Pennsylvania, and Mississippi also are considering legislation, known as “any willing provider” laws that would force insurers to expand their networks.


Meanwhile, in Washington State, insurers and hospitals have united in opposition to Commissioner Kreidler’s banned proposed new rule for insurance-provider networks that would establish several requirements to broaden networks, as well as minimum standards to include a diverse array of essential community providers. It also “requires insurers to disclose tiers of networks that require different cost-sharing on the part of patients.”10

Proponents of narrow networks say they will spur competition. David Dranove, a professor at Northwestern University who specializes in the health care industry, believes “this health care reform depends entirely on competition. So the people who are fighting for broad networks … are ultimately fighting for the demise of Obamacare.”11

Insurers maintain the Washington rule will “collapse choices that ought to be available to individuals and employers.” Mel Sorensen of the Washington Association of Health Underwriters says, “The problem of narrow networks may be self-correcting, as providers excluded from 2014 networks may accept lower reimbursements in 2015.12

Mixed Signals from the Feds

Meanwhile, federal regulators appear a bit schizophrenic on the issue. Recently, the federal Office of Personnel Management (OPM) declined to intervene in the dispute between Seattle Children’s Hospital and Washington’s insurance commissioner over the state rules governing adequacy of health plan provider networks.13

In addition, the Office of Inspector General has determined it will not impose sanctions on the use of “preferred hospital” networks as part of certain Medicare supplemental policies, the agency said in an advisory opinion posted Feb. 20.14

But the following month, CMS finalized “Provider Network Standards” for 2015. In its March 14 letter, CMS told health insurers they are required to expand provider networks in plans sold through federally facilitated health insurance marketplaces for plan year (PY) 2015. Among the requirements, marketplace plans must include at least 30 percent of “essential community providers” in their service area, an increase from 20 percent in PY 2014. Moreover, CMS will evaluate plans to ensure that they include a sufficiently broad provider network, with a particular focus on access to hospital systems, oncology providers, primary care providers, and mental health and substance abuse treatment providers.15

CMS has indicated that Qualified Health Plans (QHPs) participating in Federally Facilitated Marketplaces (FFMs) or Federally Facilitated Small Business Health Options Programs (FF-SHOPs) may be required to expand the number of providers in their networks beginning in 2015. These changes would not apply to state-based marketplaces, but in mentioning upcoming regulations, CMS suggests the agency may also be looking to expand nationwide requirements for all marketplaces and QHPs. For the 2015 benefit year, QHP issuers will be required to submit a provider list that includes all in-network providers and facilities for all plans for which a QHP certification application is submitted.

While CMS does not adopt specific time and distance standards for network adequacy, the agency suggests that it intends to use the review process to inform the development of specific standards (including time and distance requirements) for FFM QHP networks in future rulemaking.

Even though the employer mandate has been delayed until 2015, individuals were required to enroll in a health plan by March 31. Thus, physical therapists are now noticing the effects of the choices consumers have made this first mandatory enrollment period. With those choices come restrictions or liberties, depending on the cost and coverage of the plan selected; and it is well known that consumers often buy coverage using different criteria than they employ when they actually have to use the insurance.

Confusion persists, and it is unclear if narrow networks will be tolerated or embraced, or discouraged and regulated. Even though we have seen this movie before, it may take some time for the plot of its sequel to become clear. Meantime, the only common thread that we can count on is the need to continue to attempt to compete on both cost and quality, and educate potential patients so they can make informed decisions about the value of our services.


Jerome Connolly, PT, CAE, is a registered federal lobbyist whose firm Connolly Strategies & Initiatives has been retained by PPS. A physical therapist by training, he is a former private practitioner who throughout his career has served in leadership roles of PPS and APTA. Connolly also served as APTA’s Senior Vice President for Health Policy from 1995 – 2001.

Follow your lobbyist and legislative activities on Twitter: @TherapyPolicy.


1. Hancock J, ‘Narrow Networks’ Trigger Push-Back From State Officials, Kaiser Health News/PoliticoPro, Nov. 25, 2013.

2. Cusano D, Thomas A. Narrow Networks Under the ACA: Financial Drivers and Implementation Strategies, Health Affairs, February 17, 2014.

3. Fix Narrow Networks, ACP Tells HHS, MedPage Today, February 1, 2014.

4. Mathews AW, Many Health Insurers to Limit Choices of Doctors, Hospitals, Wall Street Journal, August 14, 2013.

5. Markhlevskaya L. Anthem says narrow network allows significant consumer savings PR director: More providers would mean higher premiums, Foster’s Daily Democrat, February 13, 2014.

6. Hamel L, Firth J, Brodie M, Kaiser Health Tracking Poll: February 2014.

7. Hospital networks: Configurations on the exchanges and their impact on premiums, McKinsey Center for U.S. Health System Reform, December 2013.

8. Pear R. Lower Health Insurance Premiums to Come at Cost of Fewer Choices, New York Times, September 22, 2013.

9. Nevada Register: 2014 NV REG TEXT 356022.

10. Ostrom C. Insurers, hospitals complain to Kreidler about new rule, Seattle Times, Posted April 22, 2014. Accessed April 23, 2014.

11. BNA’s Health Insurance Report, Website. www.bna.com/healht-insurance-report-p6026. Posted April 23, 2014. Accessed May 2014.

12. OIG Advisory Opinion No. 14-02, Website http://oig.hhs.gov/fraud/docs/advisoryopinions/2014/AdvOpn14-02.pdf. Accessed May 2014.

13. CMS 2015 Letter to Issuers in the Federally-facilitated Marketplaces, Website CMShttp://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2015-final-issuer-letter-3-14-2014.pdf. Accessed May 2014.