BHCG Monitor: Focus on Health Care Benefits

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Provider Network Size – Where Are We Headed?

In what seems to be a “Back to the Future” approach regarding the size of provider networks, insurers and plan sponsors are again beginning to embrace narrow networks, moving away from broad networks that include virtually every provider in a market. Are there other network size strategies available?  What are the potential pitfalls and strengths of each approach?

A history lesson: the ever-changing size of provider networks

In the 1990s narrow networks were in vogue, led by Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs). HMOs tended to have very limited panels of providers from which consumers could seek care and obtain fairly generous in-network benefits.  Consumers who chose to seek care outside the panel, however, paid a stiff price – likely bearing most or all the cost of care themselves.  PPOs, while generally including a broader array of providers to choose from than HMOs, still excluded some providers, forcing them to compete on the basis of price with the promise of more business for being designated as preferred. 

Consumers ultimately rejected these narrow network approaches.  Consumers didn’t want to be limited in their choice of providers and complained loudly about having to change their physicians when the network’s provider composition changed.  The backlash from consumers to narrow networks led to insurers and plan sponsors to create broad networks in the 2000s with most, if not every, provider included in the network.   

Back to the future

The use of narrow provider networks is again a cost containment strategy that has been gaining in popularity.  Driven in part by the Affordable Care Act (ACA), many health plans are turning to narrow networks. Representative of this return to narrow networks are the plan offerings available on the Health Insurance Marketplace, commonly known as the public exchanges. According to a recent report from McKinsey & Company, 70 percent of networks offered in Silver Plans on the exchanges, were considered narrow or ultra narrow.

The ACA is driving much of the shift toward these narrow network products, according to Gerald Kominski, director of the UCLA Center for Health Policy Research. The health care reform law standardizes health plan benefits and sets caps on out-of-pocket costs. So providers and insurers are using unique networks as a differentiator. “If you're competing on price and you can't vary copayment structure or deductibles, the only thing you can do is try and keep your networks as affordable as possible,” Kominski said.

This same narrowing of networks is also becoming more common in Medicare Advantage and commercial plans.  In the commercial space, provider-owned Accountable Care Organizations (ACOs), sometimes co-sponsored by insurers, are offering narrow network plans consisting of just a health care system’s providers or perhaps a group of health care systems’ providers. Increasingly, consumers have the option of choosing plans that offer lower premiums, but the trade-off is very limited provider choice.

A hybrid approach

Between narrow networks that limit choice but offer lower premiums and broad networks that allow for greater choice but higher premiums, lies a promising hybrid approach – tiered networks.  Tiered networks, a variation of narrow networks, offer consumers a broad selection of provider choices and more flexibility.  With tiered networks, consumers can be offered different levels of cost sharing. Consumers who choose providers in “high-value” tiers may have lower out-of-pocket costs, while selecting providers not in the high-value tier may be associated with higher out-of-pocket costs – thereby encouraging enrollees to use higher quality/more efficient providers.  

What are the expectations of a tiered network approach? The goals are consumers will influence the market if they choose higher quality/more efficient providers and providers will be motivated to improve quality and total cost of care in order to maintain or improve their tier ranking and, hence, their market share. For example, UnitedHealthcare, which has been offering a tiered network plan for more than ten years, has reported 16 percent lower average costs for specialists across 25 specialties in its high-value tier – with some specialties experiencing even lower costs and significantly less complications and number of redo procedures.

Network size trade-offs

Narrow networks

Often health care services are seen as a commodity.  Consumers wrongly believe the quality of care available is similar, regardless of the provider they choose.  However, as a significant amount of research has shown, not all care providers deliver the same quality of care and no health system delivers effective and efficient care for every medical condition. Narrow networks directing care to a small number of providers, without regard to how well those providers succeed in treating particular medical circumstances, discounts the dramatic variations in outcomes that can result across providers.

A narrow network, built around one health care system or a couple of health care systems, by definition excludes good providers – perhaps the highest value providers in the market.  While narrow networks may deliver on lower premium costs, the narrowness of the network can eliminate the ability of consumers to choose the right provider for their particular medical needs.

Narrow network advocates will tout the enhanced integrated and coordinated care that can be provided by a single health care system or a limited number of systems working together in close coordination. Assisted, in some cases, by a common electronic medical record system, a narrow network may be able to provide coordinated care that has the potential to eliminate duplicative testing and services, thereby providing higher value. However, electronic medical records must be compatible for coordination to truly occur. In addition, any efficiencies gained through coordination of care have the potential of being negated if higher value care for a particular procedure or treatment can be found outside the narrow network.

Broad networks

Broad networks, with virtually every provider included have the appeal of providing wide choice to the consumer. While a certain amount of choice is desirable, too much choice can discourage consumer decision-making.  Giving consumers a wide choice of providers is often portrayed as a positive feature, but is desir­able only if consumers are able to make informed choices. 

A broad network, supported by effective, accessible transparency tools can provide the consumers with choice, plus the ability to make informed decisions where to seek care. However, the ability to more aggressively incentivize consumers to select high value providers is not available with simply an in-network/out-of-network benefit differential.

Tiered networks

This approach actively seeks to engage consumers in health care decisions and reward high value providers across the market. Tiered networks represent the best of both worlds in terms of choice and value, creating a consumer-driven “virtual” narrow network inside of a broad network. Increased employer interest in a tiered network approach has been driven by the appeal of engaging consumers and providers alike while maintaining choice.

For optimum results to be realized through a tiered network approach consumers must have the knowledge and tools they need to make informed deci­sions about choosing among tiers and the impact those choices will have on their financial responsibility. For consumers to make educated decisions in a tiered network approach, insurers and employers should be committed to spending time and effort in developing appropriate plan design and communicating how the tiers work and how consumers can benefit from carefully deciding where to receive care. 


The use of narrow provider networks in health insurance plans is a cost containment strategy that has gained popularity of late. As interest in the use of narrow networks has increased, so too have concerns about their effect on consumers’ choices and access to the highest value care specific to their medical needs. A tiered network approach allows employers to achieve the best of what both a narrow network and broad network strategy offers.  Consumer education and engagement through plan design, if properly deployed, will provide the necessary support for consumers to make informed choices about where to seek high value care.


Burns, Joseph. "Narrow Networks Found to Yield Substantial Savings." Managed Care, February 2012.

David Blumenthal, M.D. Reflecting on Health Reform - Narrow Networks: Boon or Bane? February 24, 2014. (accessed 2015).

Herman, Bob. Reform Update: More providers, insurers showing appetite for narrow networks. October 2014. (accessed 2015).

"Research Insights." Academy Health. 2015. (accessed 2015).

Sanger-Katz, Margot. "Narrow Health Networks: Maybe They're Not So Bad." New York Times, September 9, 2014.

UnitedHealthcare Services, Inc. "Creating an Optimal Health Care Community." February 2015.


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BHCG Monitor: Focus on Health Care Benefits - April 2012