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Is the Traditional Health Plan Network About To Go The Way of the Dinosaurs?

February 2, 2021

Friends, we’re going to admit this post is a little “out there.” Also, having lived (just barely—leggings, cookies, and messy buns for the win) through the last 12 months, we know that anyone who claims to have a working crystal ball is delusional. That said, we think we're watching the real-time death of traditional health plan networks. Based on our read of the health policy landscape, it's hard to see them alive in five-years-time. Or maybe they'll be alive but struggling to stay that way and in need of massive structural change.

The traditional fully-insured network model has under strain for a while now. The Affordable Care Act (ACA) was the first blow. Actuarial value requirements and maximum-out-of-pocket limits led carriers to pare back the geographical scope of many plan networks.  And, pushing on a tied-off balloon only shifts the air—it doesn’t let any out.

Then came those entities seeking to truly let the air out of the balloon and reduce group health plan costs. We’re talking about all the independent third-party administrators, reference-based pricing gurus, value-based design whizzes, and cost containment and care managers we know. We've seen all kinds of self-funded, unbundled, and pioneering health coverage options enter the group marketplace through them. It's a market segment with tremendous growth potential. While we have no hard data and just our observations to rely on, we're going to guess that the number of Americans covered by non-network plans or value-based rather than price-based network options number in the millions.

As much as we love and believe in those options and the people who serve and deliver them, honestly, they don’t work for every group. They also aren’t particularly pervasive when you look at the 175 million lives currently covered by employer-based plans as a whole.  There is a need for safe and relatively painless solutions within the group health insurance market, particularly for smaller companies and those that don't have the time, resources, inclination, and vision to innovate when it comes to health insurance. A fully-insured PPO plan, usually offered by a BUCAH, has been filling that niche for decades. That need isn’t going away, but is the plan structure that serves it?

Over the past six months, political developments have us thinking that traditional network plans might be going the way of GameStop before Reddit. The transparency rules released by the Trump Administration on October 29, 2020, require all non-grandfathered health plans to publicly disclose in-network provider negotiated rates, historical out-of-network allowed amounts, and drug pricing information through three machine-readable files posted on an internet website by January 1, 2022. While regular people who shop for health insurance will have no ability to digest those files, the data-mining super people out there will find them easy and probably profitable reading. We anticipate that by 2023, all of that negotiated price data will have entered the marketplace.  When everyone knows how much a provider really will accept for services rendered from all kinds of payers, what will happen to group plans structured around contracted rates that may or may not be a good deal?

Layer on top of that the rest of the new transparency rules and the new transparency requirements in the Consolidated Appropriations Act 2021. These requirements overlap a bit, have effective dates that range from January 1, 2022 – January 1, 2024, and do not have implementation guidance attached to them yet. However, in a 30,000-foot nutshell, they require all individual and group health plans (including self-funded plans) to give plan participants pre-claim access to detailed and personalized cost estimates.  The Internet-based tools that will deliver this information need to disclose both what the plan participant will pay their provider AND the amount the plan has negotiated to pay the provider or facility on their behalf. 

One might say, okay, but that doesn't mean the traditional network-based plan is going away.  All of those real people, who operate actual companies and do not have the wherewithal to deal with complicated health insurance purchasing decisions, aren't going anywhere. Further, all of those busy individuals who do not have the time, interest, or inclination to use the price transparency tools already out there will not care about how much their doctor or hospital is willing to take for payment-in-full.  Those people, who generally like having a reliable network of in-network providers and facilities to turn to when they need medical care, represent the most significant chunk of the private health insurance market. Someone has to offer products that meet their needs, and a typical PPO variant offered by a name-brand insurer usually does just that. 

If all of the new data disclosure and plan transparency requirements looming were the only factors involved, we would agree with that assessment.  However, there are two other market dynamics to consider.  The first is pretty obvious.  Just because the average end-user in any private health insurance coverage system doesn't want to deal with fee negotiation, that doesn't mean that the back-end architects of our current system won't have the ability to use all of the new data to their advantage. From the carrier, provider, and third-party administrative perspectives, the avalanche of information that's about to hit us will be enormously disruptive.  It stands to reason that conventional market offerings could be buried, or at least shaken up and eventually restructured as a result.

The second factor has flown a bit under the radar.  We know we were surprised to read, at least ten days after the fact, that one of the last bills President Trump signed into law was the Competitive Health Insurance Reform Act of 2020.  The new law places significant limits on the federal antitrust exemption that health insurance companies previously had under the McCarran-Ferguson Act. Now, exclusive agreements will be a thing of the past, carrier mergers may be limited, and the Department of Justice and the Federal Trade Commission can more easily investigate and enforce antitrust complaints and violations concerning health insurance issuers. Similar legislation has been bouncing around Congress for decades. One of the reasons it stalled out previously was that even with their exempted status, carriers have argued that providers and facilities often had the upper hand, particularly in rural areas. Now, they really may have more of an advantage in negotiations moving forward.  

What do you think, friends? Are we on to something? Or should we leave the prognosticating to Al Roker? If we are right, what kind of new product designs are in our future? We're hoping it's more of a value-based system rather than a price-based design, but we are open to all possibilities.  Leave us a comment or send us an email and let us know what you think might happen!