How much do narrow networks impact premiums? – Healthcare Economist

Patients hate limited networks. Anything that limits their choice of doctors or hospitals is a turn-off. Americans like more choice.

On the other hand, payers like narrow networks because they save costs (through the ability to negotiate lower rates) and potentially increase quality (if the contracted network has higher quality physicians). In fact, according to the KFF Health Benefits Survey for EmployersBoth cost and quality are important factors when selecting a supplier network.

A key question then is: how much money do health plans save through narrow networks? That is the question posed by an article by Dafny et al. (2017) The goal is to answer this question. The authors use data from the Robert Wood Johnson Foundation HIX Compare on silver-level health insurance plans offered in the ACA Health Insurance Marketplaces in 2014-2015 in 8 states (California, Colorado, Florida, Michigan, New Jersey, New York, Texas, and Washington). After using these data and performing multivariate regression, the authors conclude that:

…an increase in hospital network breadth… was linked to a premium increase of 5.7 percent, or $191 per year, given the national average premium of $3,359 for a twenty-seven-year-old in 2014. An increase in physician network breadth from small (accounting for 10 percent of physicians) to large (accounting for 40 percent) was linked to a premium increase of 9.4 percent, or $316 per year. An increase in both hospital and physician network breadth was linked to a premium increase of 15.7 percent, or $527 per year.

You can read the full article here.

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