Health Net Turns to Single Provider

In a bid to attract more customers and keep a lid on rising premiums, health insurance plans have been eliminating the most expensive, least efficient doctors and hospitals from their HMO plans. Now some are going a step further: starting early next year, they are rolling out plans with just a single provider network. Woodland Hills-based Health Net Inc. plans to introduce this single provider plan to the Los Angeles area early next year, using its experience with so-called tailored networks as a springboard to pilot the new product. “This is the direction we’re headed in,” said Brad Kieffer, spokesman for Health Net. “It’s a strategic provider partnership with a provider that allows for greater integration, data sharing, lower costs and ultimately better care for patients.” Narrow HMO networks — or “tailored networks” as Health Net calls them — have been the most popular HMO product in recent years. Employers can save up to 25 percent off the cost of a traditional HMO by using these plans, which limit access to the most effective and cost-efficient doctors and hospitals. Such plans account for 30 percent of Health Net’s commercial business today, according to the company. Committed to choice Health Net’s new single provider network will push the insurer’s model much closer to Kaiser Permanente’s business model, where the payer and the provider are pretty much the same. Kieffer said Health Net does not want to be Kaiser. It remains committed to the network model, in which employers and employees have a choice of providers. But a plan that offers a closely aligned partnership with a single provider could deliver substantial savings to employers. For example, it would allow insurance companies and health care providers to collaborate and potentially find ways to deliver better preventative care to help members avoid chronic diseases such as diabetes or congestive heart failure. These super narrow health insurance plans are so new, the industry doesn’t even have a name for them yet. But Jim Lott, executive vice president of the Hospital Association of Southern California, calls it the wave of the future — one that every insurance company is exploring. The contract between insurance companies and providers will shift part of the risk of managing patient care to providers. Under the new contracts, insurance companies will pay a set amount to care for each employee in the plan. But unlike the old HMO plans, which created a perverse incentive to reduce costs by diminishing care, the new plans should incentivize doctors and hospitals to provide good care by paying these providers a bonus for good patient outcomes, Lott said. “We learned from the HMO models of the ‘80s,” Lott said. “Those plans did not work because the incentive was to not provide good care. Here there is an incentive to provide the care that’s needed in an efficient manner. “Doctors will have an incentive to manage diabetes better, to help patients stop smoking, to reduce their weight and they will be rewarded for those things. It’s moving from a sickness to a wellness model, and it’s where all of health care is moving.” Success in Sacramento Health Net already has one single provider plan in Sacramento, which was introduced in January. Health Net partnered with Sutter Health, a large integrated health care system of 48,000 doctors and 21 hospitals and medical centers in northern California. Employees who choose this plan through their employer receive all their care from Sutter and cannot leave the network unless there was an emergency that Sutter cannot handle. As with the narrow or tailored networks, the tradeoff with these new plans is choice. By tightening the choice of providers, an insurance company can negotiate better rates with these providers and pass the savings on to employers, said Richard Manning, CEO of Accessible Health Insurance Services Inc., a health insurance brokerage firm in Granada Hills. The lower cost structure, in turn, makes the insurance company more competitive, which is important in an environment of declining enrollment, Manning said. Health Net reported an 18 percent drop in third-quarter revenues to $2.8 billion from $3.4 billion in the third quarter of 2010. With companies not hiring or laying off employees, Health Net, like all other commercial insurers, has seen a decline in commercial insurance sales. The company’s commercial enrollment was essentially flat as of Sept. 30, 2011, with approximately 1.4 million members. The sale of tailored networks, however, was up 45 percent. Judging from the success of the narrow networks, which Manning said have been very popular — especially among small- to mid-size employers — these single provider plans could be a hit. “With all our clients, it’s benefits versus price, and these days, it’s all about, ‘How can I reduce the price?’’’ Manning said. “These plans are going to be huge.” Rising premiums Health Net and other insurance carriers introduced narrow networks starting in 2006. Health Net’s Silver plan was first introduced that year; it has 6,700 primary care doctors and 14,000 specialists, compared to the company’s statewide HMO, which has 47,000 doctors. An even more tailored plan is Heath Net’s Bronze program, which has 1,600 primary care doctors and 3,500 specialists, Kieffer said. These plans really took off in 2008 and 2009, when the double whammy of the recession and rising health care premiums hit employers. “For the companies we’re talking to, the most important issue is affordability,” said Scott St Clair, vice president of sales and chief sales officer for small business at Health Net. Most companies, he added, offer their employees a choice that includes a PPO, a full HMO and these tailored networks. Ed Philips, who owns Burbank-based Matthews Studio Equipment, an equipment manufacturer for the film and television industry, said for him, it came down to offering employees a tailored plan or nothing at all. Business declined 40 percent when the recession arrived in 2008, the same year the company faced an 18 percent rise in insurance premiums. “We were looking at eliminating offering insurance altogether,” Philips said. Like many small- to mid-sized businesses, Philips contributes a set amount a month toward employees’ health insurance costs. In 2007, that was $200 a month, typically enough to cover the entire cost of an HMO for an employee, though not his or her family. Then rates jumped to $300 in 2008, so Philips increased the company’s contribution, paying the entire amount. When rates jumped another 18 percent in 2009, he simply could not afford it, he said, and neither could his employees. That same year, everyone took a 10 percent pay cut. The tailored Silver plan allowed Philips to purchase an HMO plan for his workers at 2008 prices. The smaller range of options doesn’t bother his employees, Philips said. They are just happy to have insurance at all.