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Narrow networks lower spending by a third, research finds


Although narrow networks aren't popular among providers and some states are even urging insurers to widen their provider lists, narrow networks can help lower healthcare costs by reducing patient spending by as much as a third, according to a new paper from the National Bureau of Economic Research.

Analyzing insurers operating in Massachusetts, many of whom limited their networks when the state launched its health reform, as FierceHealthPayer previously reported, Massachusetts Institute of Technology Economist Jonathan Gruber found in his research that consumers spent 36 percent less on their healthcare, primarily because they used more primary care services and decreased their emergency room usage. Those primary care doctors also charged lower co-payments.

What's more, consumers with narrow network plans spent 45 percent less for specialty care services, including fewer X-rays and scans.

Gruber also determined that consumers enrolled in narrow network plans had access to fewer hospitals, but they were considered equally good hospitals. The study analyzed several quality indicators, including readmissions caused by hospital errors, and determined that narrow networks still offered the same level of quality.

"Overall, the findings suggest that the switch to limited network plans reduced spending without harming access to primary care or inducing shifts to more expensive tertiary care," Gruber wrote in the paper.

One important caveat, however, is that the paper only proves that the Massachusetts health insurance market successfully lowered costs with narrow networks. Gruber noted that his research doesn't demonstrate that all insurers offering limited networks will achieve the same savings. "An important goal for future work should be to extend this analysis to those other examples," he added.

"While Massachusetts' experiment shows the potential of limited network plans, it doesn't suggest that every foray into limited choice will go equally as well," notes Sarah Kilff, who wrote about the study for Vox. "It's probably most fair to read this study as a proof of concept: Set up correctly, limited choice plans can save money without sacrificing quality."

To learn more:
- here's the NBER paper
- check out the study abstract

Related Articles:

Narrow networks: Striking the right balance
How to form high-quality narrow networks
Harvard Pilgrim launches shared-risk, narrow network plan
Mass. reform increased insured, didn't cut costs
Providers blast discrepancies in narrow network exclusions
Insurers urged to expand networks