Forging A Profitable, Sustainable ACA Network Strategy
Editor’s note: This is part of an ongoing series analyzing the future of the Affordable Care Act. Previous articles examined five key trends reshaping the market, the promise of Individual Coverage Health Reimbursement Accounts, what’s driving historic growth in enrollment, and the continued rise of narrow networks. This article details why and how insurers can increase network competitiveness and profitability, regardless of whether carriers offer broad or narrow networks in their product design.
As Affordable Care Act enrollment continues to reach new heights — a record 21.3 million on-exchange signups this year — insurers are challenged more than ever to ensure their business models are designed for long-term sustainability.
One critical and often overlooked area that’s ripe for being revamped is provider networks. Our assessment suggests that network costs represent the single largest driver of ACA Marketplace premiums, typically ranging from 60%-80% of premium rates depending on metal tier. That’s because most provider networks are not expressly built for the Marketplace and carriers often try to shoehorn their ACA network into arrangements more geared toward commercial or government services lines. These differences can have a negative impact on profitability for the ACA service line.
But there’s a path forward for ACA insurers, one where reduced network rates may offer a significant opportunity to convert medical cost savings into lower premiums, capture more membership, activate underperforming markets, and improve margins.
ACA provider networks need focused attention
First, don’t confuse Marketplace-aligned networks with narrow networks, which can damage both perceived and real value for providers, members, and carrier brand. Marketplace-tailored networks balance a variety of priorities to maintain positive provider relationships while achieving profitable rates and terms that translate into competitive price position and greater member growth.
Marketplace-aligned networks demand a targeted provider strategy, tailored rates, and designs to cater more specifically to ACA enrollees. That’s driven by the unique nature of the ACA Marketplace which blends characteristics of both commercial and government health insurance. Success in one of those segments does not automatically translate to the ACA. For instance, a health plan we recently worked with had good penetration in other segments, but its ACA plans drew fewer than 50,000 enrollees out of a market of more than 2 million Exchange members.
Similar stories are playing out nationally because many insurers have a one-size-fits all approach to provider network contracting. Their provider network teams typically deal with multiple business lines and don’t always accommodate the distinctions between commercial, Medicare Advantage, Medicaid, or the Marketplace. Instead, they are adopting contracts that worked in other segments and applying them to the ACA.
To bolster the performance and profitability of their Marketplace-aligned networks, carriers need to embrace a more nuanced set of tactics. That includes being familiar with consumer shopping habits since ACA enrollees tend to be price sensitive. They also need a deeper understanding of how contract terms impact both profitability and operability. It is equally important to balance negotiation outcomes with the need to maintain strong provider relationships. Provider outreach and engagement often require a significant amount of education and information by a payer’s negotiation team to explain the critical performance differences between the ACA Marketplace and other insurance segments. Those conversations should showcase for providers what profitable network rates and terms look like for both parties.
The regional health plan we worked with, for instance, worked with a marquee hospital system to attain up to 65% rate reductions. While composite premium reductions are somewhat less dramatic, they are still meaningful to reduce overall medical cost that can be translated into competitive positioning and/or profitability.
Carriers should consider starting with their fee-for-service contracts before evolving to more complex risk-arrangements. Establishing Marketplace-aligned performance metrics will be necessary to define how a healthy provider network should function.
Strong collaboration and communication with providers will also help reduce friction in processes such as prior authorization, claims review, payment, and disputes. Unresolved issues in these areas are often one of the biggest barriers to providers’ willingness to negotiate. Centers for Medicare and Medicaid Services policies on price transparency can aid these negotiations. Insurers can leverage these data to model competitors’ premiums and gain more insight into what other carriers are paying.
Getting started on your provider network redesign
Knowing where and how to start with a provider network overhaul can be daunting. We’ve identified five key areas for insurers to zero in on:
- Targeted Reduction of Network Costs: Identify uncompetitive, high-opportunity service areas for cost reduction.
- Network Enhancement and Gap Closure: Add select, in-demand, and marketable providers to enhance networks in each target service area.
- Strategic Balance: Use deep competitive intelligence, provider analytics, negotiation prioritization, and actuarial modeling to balance marketability, price position, operability of terms, and projected profitability impact.
- Process Maturity: Enable ongoing improvement through the maturation of Marketplace network processes with revised metrics aligned to business and member outcomes.
- Organizational Development: Optimize negotiation results through the development of Marketplace-specific skills for key talent.
From significant rate reductions to substantial market growth, there are tangible benefits to tailoring a dedicated Marketplace provider network strategy. Importantly, these strategies can be scaled to as many markets and service areas as needed to improve overall competitive positioning and profitability. Investing in robust network performance management is not just a strategic choice but a top initiative for health plans aiming to thrive in the ever-evolving and hyper-competitive ACA Marketplace.
For more information about Oliver Wyman's network profitability work, contact Travis Kistler, Partner, Health and Life Sciences, and Shyam Vichare, Partner, Health and Life Sciences.