Narrow Networks and Medicare Advantage: The True Meaning of Managed Care?

United HealthCare and other Medicare Advantage plans are dropping numerous providers from their networks, to the consternation of members given short notice of the changes. Predictably, the story is presented as big bad insurance co. vs. grandma, but the real story is less clear-cut.

For years, Medicare Advantage plans have benefited from a regulatory structure that pays them more than the average Medicare fee for service cost for parallel populations and asks the plans to provide some addtional services to beneficiaries in return for the bonus payments. The reimbursement has been attractive enough to keep numerous insurance companies involved in Medicare Advantage.

Thanks to the ACA, however, the munificence of the federales is being cut back, and the reductions in Medicare FFS payments over time were projected by the CBO in 2012 to yield a $156B reduction in Medicare Advantage payments in the years 2014 through 2022 (see link to projections in Kaiser Health News article linked to above). While this represents only something like half a percent of the projected total U.S. health care spend over the years in question, it is of course a larger percentage of the Medicare Advantage budget, and it may reasonably cause some plans to rethink their strategies.

One managed care strategy that has long seemed incompatible with broad notions of the right to freedom of choice is the notion of establishing narrow networks. By establishing narrow networks, managed care plans have the opportunity to, um, manage care. Cost and quality metrics may be used to determine who’s in and who’s out. While it is not clear what decision rules are being used by Medicare Advantage plans in limiting their networks (academic practices and sole community providers of certain subspecialties were identified in the KHN article as among those axed), the point is that for managed care to work, the network must be managed. We’ve been kidding ourselves by pretending otherwise.

For more on the changing Medicare Advantage landscape, see the recent Kaiser Family Foundation Medicare Advantage 2014 Spotlight: Plan Availability and Premiums.

David Harlow
The Harlow Group LLC
Health Care Law and Consulting