Understanding Why Narrow Networks Dominate The ACA Exchange

Editor’s note: In this, our fourth article, in a series of articles analyzing the future of the Affordable Care Act we document a clear narrow network trend and implications for carriers and consumers. The first article provided an overview of five key trends that will reshape the market. The second article examined the promise of Individual Coverage Health Reimbursement Accounts. The third article detailed what’s driving historic growth in enrollment.

Narrow networks proliferated during the first 10 years of the Affordable Care Act. HMOs and exclusive provider organization plans now account for 79% of offerings on the ACA Exchange. That’s up from 42% in 2014. As a result, availability of less restrictive plans and PPOs fell from 58% in 2014 to just 21% this year.

All indicators point to this trend continuing during the ACA’s second decade. It means that insurers must continue to innovate to address network adequacy and, critically, confront ongoing operational and regulatory challenges like having accurate provider directories. In this article, the fourth in our series on the ACA, we examine why narrow networks are to dominate on the Exchange and how that will impact payer strategy in the coming years.

Factors driving narrow network growth

There are a handful of reasons why payers are bullish on narrow networks. For starters, having a tighter relationship with select providers in a market can be a competitive advantage as plans vie for members. Smaller networks can also generate more bargaining power in terms of pricing with health systems and physician practices. Additionally, by acting as gatekeepers, HMOs and EPOs tend to drive down utilization of high-cost specialists and direct members to more appropriate sites of care if that’s clinically appropriate.

Interestingly, the ACA itself is a major driver of narrow networks. By requiring all Exchange plans to cover 10 essential benefits, prohibit coverage denials due to pre-existing conditions, and stop the practice of increasing premiums for higher-risk members, the law seems to be leveling the playing field among insurers. Waiting periods, annual coverage limits, and lifetime limits were also eliminated. So, plans have fewer levers to pull to control risk and manage cost.

The ACA framework creates a fair amount of uniformity of coverage levels, which we’ve seen play out in each of the metal tiers. The law also requires payers in the individual market to spend at least 80% of their premium revenues on clinical care and quality improvements. With all these limitations, network design became the surest way to differentiate from competitors.

Many markets are emerging as narrow networks

Plans that include HMO networks have grown 60% since 2014, while EPO plans have tripled. In fact, EPOs now represent about one-third of narrow networks. EPOs are often constructed and contracted to be very restrictive and billed as a high-performance network with high-quality providers.

The mix of network types differs significantly from state to state and at the county level. We looked at counties in a dozen states using Healthcare.gov — a combination of high enrollment and low enrollment states. Our snapshot illustrates the prominence of narrow networks. This has been a trend in many states over the last few years, and some states no longer have any major carriers offering PPO options in the individual market. Blue Cross Blue Shield plans typically remain as the last payer category doing so.

Growing pains as enrollment grows and networks shrink

As we pointed out in a previous article in this series, a convergence of nine factors helped drive historic enrollment in 2024, climbing to more than 21 million sign-ups. That, combined with growth of narrow networks, is exacerbating headaches for plans, providers, and consumers, something we’ve dubbed the Triple-A Effect:

• Access: Finding an in-network provider can be a challenge
• Accuracy: Provider directories are too frequently incorrect, listing doctors and hospitals not currently in the network that should be and vice versa
• Abrasion: Frustrated with the squeeze play on access and accuracy, consumers may consider delaying care or going without treatment

While narrow network plans often carry lower premiums, insurers are challenged by customer abrasion and lower satisfaction scores. People enrolled in an Exchange plan are more likely than those in Medicare or employer-sponsored coverage to experience problems with the provider networks, according to a 2023 KFF consumer survey. For instance, 20% reported that a particular doctor or hospital they needed was not covered by their plan’s network. That compares to 19% for Medicaid enrollees, 13% for people in an employer-sponsored plan, and 9% for Medicare beneficiaries. Overall, fewer Marketplace consumers gave their insurance a positive rating compared to the other three coverages.

Those factors have not been lost on regulators. The Centers for Medicare and Medicaid Services raised concerns in its 2023 Notice of Benefit and Payment Parameters, saying that the rise narrower networks present several concerns for consumer protection, including “whether a narrow network has sufficient capacity to serve plan enrollees, or whether providers may be too geographically dispersed to be reasonably accessible.” We are likely to see more attention to network adequacy by both federal and state regulators.

Provider director accuracy is also in the crosshairs. Plans have been required since 2016 to publish an easily accessible and accurate provider directory. But meeting those mandates has proved difficult. CMS annual internal reviews between 2017-2021 found that more than half of provider entries were incorrect and 73% of the providers reviewed matched those listed on payers’ websites.

Congress sought to tackle the problem in the so-called No Surprises Act, part of an appropriations bill that was enacted in December 2020. The law requires payers to update directories every 90 days.

Insurers falling out of compliance could be subjected to fines of up to $100 per day for each individual affected by a violation. Both payers and providers are challenged to keep directories accurate and up to date. A typical practice, for instance, must respond to requests associated with 20 health plan contracts, creating a constant stream of update requests. The administrative burden is costly and something that many practices cannot keep current.

Two viable solutions have emerged as possible paths forward. The first would be a technology platform and data standard for directories that insurers access without contacting provider or health system personnel to maintain accurate directories. The alternative is a National Directory of Healthcare Providers and Services, which CMS floated and sought comments on in 2022.

With no real movement on either of these industry-wide solutions, carriers need to take the lead in educating members about network coverage. A carrier that makes provider directories easily available to its members, as well as offering clear and accurate network coverage details, could achieve a competitive advantage.

Piloting a solution for network transparency

CMS in 2017 rolled out a network transparency tool that would allow consumers to compare the breadth of provider networks. The pilot, which originally included six states but now only involves Tennessee and Texas, created three network classifications:

1. Basic: fewer than 30% of available providers, which will display as “smaller than other networks in similar areas” on Healthcare.gov

2. Standard: 30-69% of available providers, which will display as “about the same as other networks in similar areas” on Healthcare.gov

3. Broad: 70% or more of available providers, which will display as “larger than other networks in similar areas” on Healthcare.gov

This level of clarity could be a benefit to consumers. We reviewed various 2024 plan offerings on Healthcare.gov and found that consumers must go through multiple screens to get to network and provider details, none of which are available in the side-by-side comparison. Executives and government relations and policy teams at Exchange plans should consider contacting CMS about not only broadening the network breadth pilot but making it a priority to develop simple functionality to give consumers real network transparency. Solving these challenges will require a significant amount of coordination between CMS, payers, and providers. Improvement opportunities will likely be a multiyear effort.

Movement toward value-based care models

Exchange-specific networks were initially built around payers negotiating provider discounts in return for volume. We are starting to see more alignment around value and quality programs. As we’ve seen with Medicare Advantage and Medicaid Managed Care Organizations, value-based arrangements are an opportunity to bolster care, including in narrower networks. Through its Health Insurance Marketplace Quality Initiatives, CMS aims to drive even more Exchange plans in this direction, including posting quality rating scores on Healthcare.gov.

With billions of dollars and millions of customers at stake, payers will continue to search for innovative ways to control costs with more restrictive networks and value-based care partnerships with providers on the Marketplace. Expect to see continued migration and investment in HMO and EPO networks designed specifically for the Marketplace. As they move in that direction, a strategic imperative for payers is solving the challenges with network access and provider directory accuracy. Payers that are persistent, innovative, and adaptive to changing market dynamics will continue to experience growth and sustainability in this expanding Marketplace.

For more information about Oliver Wyman's Exchange platform, contact Travis Kistler, Partner, Health and Life Sciences, and Shyam Vichare, Partner, Health and Life Sciences.