Shrinking Hospital Networks Greet Health-Care Shoppers on Exchanges - Report Shows How Insurers Are Betting Price Is More Important to Consumers Than Choice

From The Wall Street Journal:

Many plans being offered now on the new insurance exchanges sharply limit the number of hospitals where services are covered, according to a new McKinsey & Co. report. Insurers are making a bet that price is more important to consumers than choice, and limiting the number of hospitals and doctors allows them to keep the cost of a plan as low as possible. Many of the new plans offered still are more expensive than current plans because they offer more benefits.

According to the McKinsey report, which looked at federal and state-run insurance exchanges in 20 cities including Los Angeles, Atlanta and Houston, about 60% of health plans offer coverage at a smaller number of hospitals than comparable current individual plans. McKinsey identified 120 health plans in those markets by examining federal and state exchange filings, as well as provider information listed on individual insurer and hospital websites. Some of these new plans limit coverage to one or two large hospitals.

The number of hospitals accepting insurance from a consumer who buys coverage on the exchange could be 60% lower than the number of hospitals in current individual plans, according to the McKinsey report, which included the 20 largest hospitals in each market that it measured.

Consumers can still buy plans on the exchanges that offer coverage at a wide network of hospitals, but they cost significantly more, McKinsey said. In a market where the same insurer offers two separate plans—one with broad hospital access, one with limited options—the more comprehensive coverage costs 26% more, McKinsey said.

In Los Angeles, two top research hospitals, Cedars-Sinai and Ronald Reagan UCLA Medical Center, are excluded from most of the area's plans sold on the state-run exchange, Covered California. Just one of seven middle-tier plans, for instance, features a broad-access, preferred-provider organization design. They range in price from $244 to $302 a month, for a 40-year-old nonsmoker.

Consumers who need complex procedures like heart transplants will still be able to get them because their insurers will contract with hospitals that offer them.

Still, "when you need an organ transplant, it's a matter of life or death—do you want your insurance company calling us, working out a deal?" asked David T. Feinberg, CEO of the UCLA Hospital system, which includes Ronald Reagan. The hospital is included in just two of seven middle-tier health plans sold in the Los Angeles market.

Long Beach Memorial Medical Center, which has three hospitals, took "significantly" lower rates with three insurers to remain as an option for people buying coverage on the exchange, said CEO Diana Hendel. Long Beach is counting on a surge in patient volume to compensate for a drop in payments, she said.

"It's a leap of faith," said Ms. Hendel.