The only way to fund health care for the betterment of the employer and employee is to get creative. Narrow networks are one way to do that.
This approach is gaining popularity, as area hospital systems offer reduced charges when health plans steer members to them. Because the charges are dramatically reduced, the claims that are paid out are dramatically reduced and the premiums are dramatically reduced.
“Typically, companies have to shift more of the premium and risk to the employee by increasing contributions out of their paychecks, raising deductibles, co-payments and out-of-pocket maximums. A narrow network approach that reduces the cost by 25 percent — rather than increasing it by, say, 8 percent — enables a company to offer better insurance. It has better coverage with lower deductions, lower out-of-pocket, lower co-pays and lower premiums,” says Michele Hanzak, senior account manager at Zito Insurance Agency Inc.
Smart Business spoke with Hanzak about the rise of narrow networks.
How are narrow networks different than preferred provider organizations (PPOs)?
Over time, PPO networks started including everybody and the discount arrangements weren’t as deep. The move back to narrow networks comes at a time when health care cost increases are felt by both employers and employees. This means people are more willing to change their patterns of care.
Narrow networks today are also increasingly coupled with population health management, which is integrated into the contracting. The federal government is encouraging health systems to move away from the fee-for-service model, and the more nimble hospitals are taking that out to the commercial population.
Yes, narrow networks limit the number of doctors and hospitals. But a narrow network approach, coupled with population health management, results in more quality time spent between the doctor and patient.
When a company introduces a plan like this, is it normal to face resistance at first?
There’s always pushback initially. That’s why the education process is critical with employees and their family members. If people pay less for better outcomes and have a better relationship with their doctor, the results speak for themselves, even if that means switching doctors.
For example, family health plan coverage might cost $2,000 a month, with $1,000 of that coming out of an employee’s paycheck. A narrow network, which lowers the plan costs by 25 percent, means that employee now pays $750 a month — effectively a $250 a month raise. Plus, the out-of-pocket maximums and claims may be lower.
What other methods can be employed with narrow networks to contain costs?
Stop-loss carriers, or reinsurance companies, have come down market so their product portfolio can be tailored for smaller employers. This opens up the health care data technology platforms of third-party administrators (TPAs). A dashboard can be created to describe the exact cost and outcome for specific procedures, based on each doctor or health care provider. TPAs also typically have the best narrow network approach and contractual arrangements.
If self-funding seems risky, a level-funded approach adds additional layers of protection. Gathering a bunch of small level-funded employers together and plugging them into a captive arrangement adds even more protection. Usually, with captives, companies pay for four years and generate enough savings and cash flow that the fifth year becomes fully funded already.
Is a nontraditional approach more work?
Not really — there’s more information gathering upfront, but everybody uses data collection tools anyway. The plans do need to be monitored; it’s not something you can plug in after you’ve shopped the market and be done. By tracking patterns, you can see how to educate your employees, which can help save money throughout the plan year.
The most difficult piece, however, is the initial education component. That’s why it’s critical to find the right broker, someone who truly understands this and how it can benefit you. Only then can they help you design something that’s going to work best for you and your health plan population.
Insights Business Insurance is brought to you by Zito Insurance Agency Inc.