McKinsey: Study on the Impact of Narrow Networks on Exchange Plans

McKinsey & Company LogoThe consulting firm, McKinsey & Company recently published an Intelligence Brief on the configuration of provider networks offered by the plans on the Healthcare Exchanges.  The study focused on the inclusion of hospitals to define broad vs. narrow  networks but the same definition applies to physicians included in the networks.  There has been much press coverage of late on the “narrowing” of networks by plans to maintain profitability on exchange-based plans  while meeting pricing targets and benefit requirements mandated by the ACA.  This June 2014 study by McKinsey sought to confirm the degree to which narrow networks predominate on the exchanges and what impact that is having on consumer choices.

The study defined network based on the extent of hospital participation, as follows: broad networks have more than 70 percent of all hospitals in the rating area participating, narrow networks have 31 to 70 percent of all hospitals in the rating area participating, and ultra-narrow networks have 30 percent or less of all hospitals in the rating area participating. They classified a network as tiered if the payor put different hospitals into different tiers with different co-payment requirements.

Though the findings of the study corroborate that narrow networks make up almost half of the total plans offered on the exchanges, at least one broad network is available to almost 90% of the population.  But they are more expensive - an average of 15% more expensive.

Here are some key observations from the study as identified and described by the study authors:

  • Consumers now have an expanded choice of network offerings at the point of health plan purchase on exchanges. Broad networks are available to close to 90% of the addressable population.
  • In addition, narrowed networks are available to 92% of that population; they make up about half (48%) of all exchange networks across the U.S. and 60% of the networks in the largest city in each state.

  • In 104 rating areas (representing 8 percent of the addressable population), broad networks are the only network type offered. In many cases, these are rural areas with provider market structures not conducive to narrowing (e.g., they contain only one or two hospitals). In addition, local regulations in some markets may lead to different network configurations or levels of narrowing. In contrast, across the largest cities in each state (which together include 30% of the addressable population), the prevalence of narrowed networks is 60%.

  • Compared to plans with narrowed networks, products with broad networks have a median increase in premiums of 13 to 17% (or $29 to $59 per member per month); the maximum increase is 53%.  Across the country, close to 70% of the lowest priced products are built around narrow, ultra-narrow and tiered networks.

  • There is no meaningful performance difference between broad and narrowed exchange networks based on Centers for Medicare and Medicaid Services (CMS) hospital metrics such as the composite value-based purchase score as well as its three sub-components (outcome, patient experience, and clinical process scores). However, broad networks have higher rates of academic medical center participation.

  • Certain market conditions are associated with a greater prevalence of narrowed networks—specifically, higher excess bed capacity, greater provider or payor fragmentation, and more significant potential for growth from the uninsured than from people who previously had coverage.

  • Seventy-five percent of all ultra-narrow, silver-tier products include only some of the hospitals within participating health systems. Forty-four percent of these products exclude at least one hospital from every single participating health system. Ultra-narrow networks excluding hospitals from every participating health system are priced an average of 13% lower than ultra-narrow networks containing entire health systems

  • In (a consumer study published in April by McKinsey), 42% of the respondents who indicated they had enrolled in an ACA plan and were aware of the network type reported purchasing a product with a narrowed network. However, 26% of those who indicated they had enrolled in an ACA plan were unaware of the network type they had selected.

McKinsey Center for US Health System Reform. Hospital networks: Updated national view of configurations on the exchanges Noam Bauman, Erica Coe, Jessica Ogden, Ashish Parikh. June 2014.

Join Our Newsletter

Get Updates Direct to Your Inbox. Gain access to a rich library of articles, white papers, webinars, podcasts and more. Register today to receive eMDs Insights newsletter.

Specialty *
State *