Decomposing the sources of cost savings in insurer-hospital networks

Tuesday, June 25, 2019: 10:30 AM
Wilson B - Mezzanine Level (Marriott Wardman Park Hotel)

Presenter: Eli Liebman

Co-Author: Matthew Panhans

Discussant: Daniel Polsky

Narrow network health insurance plans have been shown to have lower premiums and lower costs to insurers. This paper seeks to decompose and quantify the magnitudes for various mechanisms by which networks may reduce premiums and costs. Using data on the Colorado non-group market, for narrow compared to broad network plans we decompose the savings due to (1) enrollee health status, (2) differences in negotiated prices for hospitals, (3) differences in hospital usage due to channeling patients, (4) the countering effect of lost savings due to higher out of network payment rates. We quantify the impact of these various mechanisms for the entire state and also break down the savings by geography because the ability to exclude and potential savings from exclusion may vary by the number of hospitals in a given market. These findings are important for policymakers considering how to balance containing rising healthcare costs and concerns regarding an appropriate regulation of narrow network plans.