Narrowly We Roll Along

One of the great mistakes of health policy in America in the last 15 years has been the relentless focus on insurance coverage numbers above all else. This push by the left to provide insurance coverage to anyone and everyone has led to expensive subsidies for Affordable Care Act (ACA) plans while doing little about the actual cost or accessibility of care. Demonstrating this point, on August 26, KFF released an analysis indicating just how narrow the average ACA exchange provider network actually is, and the difficulty that ACA exchange beneficiaries have accessing care. Handily enough, Paragon has released a paper from Daniel Cruz and Greg Fann today covering the declining quality of ACA plans and how narrow networks are a major measure of that decline. As Cruz and Fann explain, these narrow networks are the result of the design of the ACA’s regulations and subsidies and problems with the ACA’s risk adjustment program.

Coverage Isn’t Care

Nearly every single argument against reforming the ACA – both the exchanges and the Medicaid expansion – ultimately comes down to claiming that coverage numbers will decline. The raison d’être of the ACA was to cover the 15.4 percent of U.S. residents who at the time did not have insurance coverage. President Biden has routinely touted the coverage gains under the ACA and its subsequent subsidy expansions in the American Rescue Plan Act (ARPA) and the Inflation Reduction Act (IRA). The uninsured rate is now around 7.7 percent. Courtesy of ARPA and the IRA, premiums are fully subsidized for nearly half of all individuals signed up for ACA plans in 2024. If coverage is so important, this must mean those covered now have great access to care, right?

No, because coverage is not care, and it is not access to care. As the KFF report points out: “34 percent of Marketplace enrollees in fair or poor health reported that a particular doctor or hospital they needed was not covered by their plan, nearly two times more than those with an employer plan (16 percent)”. KFF reported that the average exchange enrollee had access to only 40 percent of local physicians – 43 percent of primary care doctors, roughly half of specialists, and 21 percent of hospital-based physicians.

Strangely enough, KFF found that provider participation in networks got worse as population density increased. The average exchange enrollee in rural counties studied had access to 52 percent of local physicians, while those in large metropolitan counties had access to only 34 percent of physicians. Shockingly, residents of Cook County, IL (Chicago and much of its metro area) had access to only 16 percent of local physicians. According to KFF, in 2021, 14 percent of Marketplace enrollees (1.6 million people) were concentrated in and around four cities: Los Angeles, Houston, Miami, and Fort Lauderdale, and “on average, enrollees in each of these counties had in-network access to less than 4-in-10 local doctors (25 percent, 36 percent, 38 percent, and 25 percent, respectively).” Rural residents may have had more access to a larger percentage of local physicians, but that doesn’t necessarily mean they had more options; KFF’s report notes that many of these areas have fewer physicians per capita than urban areas. Plans typically cover a higher proportion of doctors in rural areas simply because there are fewer of them.

These narrow networks are reflected in the types of plans enrollees belong to. In their paper, Cruz and Fann highlight that typically narrow-network plans, like health maintenance organizations (HMOs) and exclusive provider organizations (EPOs), have become significantly more popular among exchange enrollees over the last decade than generally broader plan types like preferred provider organizations (PPOs) and point-of-service (POS) plans. In 2014, as the Paragon Pic below demonstrates, 50 percent of exchange enrollees were in either PPOs or POS plans. By 2023, only 17 percent of enrollees were in these types of plans.

Employer Plans vs. The Exchanges

These numbers are in stark contrast to employer plans: Cruz and Fann note that while 83 percent of ACA exchange enrollees are in HMO/EPO plans, only 18 percent of employer plan enrollees are in HMO/EPO plans. A 2020 study found that large-group plans had, on average, 57.3 percent of local primary care providers in-network, 68.5 percent of local cardiology specialists in-network, and 59.5 percent of local acute care hospitals in-network. This is compared to exchange plan networks, which only had respective percentages of 36.4 percent, 45.6 percent, and 51 percent.

Designed For Narrowness

It should be said that narrow networks are not inherently bad – they are a way for insurers to control costs, and as one of a suite of options, they make up part of a healthy insurance market. The problem is that so many of the ACA exchange plans have narrow networks that enrollees often lack choices of plans that cover the best doctors and hospitals in particular regions, even if they wanted to pay more for such coverage.

Those choices are further narrowed by the incentive structure of the exchanges. Part of this is due to the structure of subsidies. As Cruz and Fann state, “because lower-income consumers are particularly price sensitive—and even more so in this elevated premium environment—there is a very large incentive for plans to be [priced] at the benchmark premium [the second lowest-cost silver plan] or lower. … This increases the likelihood that the benchmark plan will have a narrow network.”

Another problem is the ACA risk adjustment program. In the exchanges, plans that have enrollees with higher predicted medical risk get reimbursed by plans that have enrollees with a lower predicted medical risk through a zero-sum payment mechanism. The current risk adjustment formula does not consider the relationship of income and medical utilization (low-income individuals typically utilize less care), resulting in the risk adjustment program (run by the Centers for Medicare and Medicaid Services) overcompensating plans for the lowest income earners (enrollees under 200 percent of the FPL) by nearly 30 percent. This makes these low-income, price-sensitive enrollees the most profitable enrollees for plans.

Not only are these enrollees more profitable, but they are also a huge part of the exchange market. In 2023, enrollees under 200 percent of the FPL made up nearly 50 percent of all exchange enrollees. As Cruz and Fann put it, the combination of price-sensitivity and the profitability of these enrollees “incentivized insurers to offer lower-priced, narrow network plans and has led to carriers ‘aggressively underpricing’ silver plans [based on actuarial value] —and consequently overpricing other plans, rendering them unattractive.”

Improving ACA Coverage

Cruz and Fann propose several fixes to ensure the availability of higher quality plans on the exchanges. First, CMS should implement an income factor into its risk adjustment calculations to account for the fact that low-income individuals use health care services at lower rates. This will help fix distortions that make these subsidized enrollees the target market for insurers at the (literal) expense of unsubsidized enrollees, who currently pay inflated silver premiums, and others who would like broader network options.

While silver plans are “underpriced” based on the actuarial value they offer, the premiums are very high for unsubsidized enrollees because insurers have been incentivized to jack up premiums for silver plans in order to make up for the de-funding of the cost-sharing reduction (CSR) program in 2018. Cruz and Fann propose additional technical changes that would improve the risk adjustment formula so that insurers have less incentive to design plans to target particular enrollees. In essence, these reforms would better reflect the actual plan conditions, ensure that low-income, price-sensitive enrollees are not as profitable for plans, and encourage insurers to offer a broader range of plans with broader networks to attract unsubsidized individuals.

Cruz and Fann also suggest that the ACA would work better, including for low-income enrollees, if Congress appropriates money for the CSR program. This would better target financial assistance to low- income individuals without pricing out people who do not qualify for subsidies or cost-sharing reductions. Finally, Cruz and Fann propose that policy makers should strengthen individual coverage health reimbursement arrangements (ICHRAs), where employers provide workers a set amount of money to buy individual market plans. Cruz and Fann recommend building on ICHRAs because more people in the exchanges will make the markets more attractive to insurers, who would offer more plans – in turn attracting more people and creating a positive feedback loop to develop a healthier, more competitive individual market. All these reforms would work to improve the efficiency of the individual market and provide greater options for coverage and access to care.

The thumbnail image for this post is from the 1942 Warner Brothers Looney Tunes cartoon Porky’s Cafe, which entered the public domain in 1970 due to Warner Brothers’ failure to renew the copyright. More here.