Financial professionals are trying to figure out exactly what types of advice consumers are most likely to seek.
With health insurance premiums continuing to outstrip inflation, some health insurers and hospital systems are considering bringing back an old strategy: limiting patient access to a "narrow" network of doctors and hospitals.
That idea, common in the heyday of health maintenance organization health plans, has been out of vogue in Indiana for nearly 15 years. But WellPoint Inc., Indiana University Health Plans, Community Health Network and others are thinking about bringing it back.
"Just as everybody else is, we're looking at this as an opportunity," said Jim Parker, a former WellPoint executive who recently became president of IU Health Plans, the health insurance arm of the IU Health hospital system. "Employers are indicating that they're ready to consider changes in the way they select and finance benefits. The cost of doing so is so significant that they're open to change."
Narrow networks hold some promise for reducing provider prices or helping reduce patients' need for health care or some of both.
Networks of hospitals and doctors are the critical foundation of health plans. To be in a health plan's network, doctors and hospitals must agree to pre-set discounts off their charges. Typically, the health insurer that secures the biggest discounts can offer the lowest prices to its customers.
There are two main ways to build a narrow network. One is to cut out the highest-cost providers, thereby ensuring that patients see only low- and moderate-cost providers. The other is to make one hospital system cost more to plan members than the others do, steering them to cheaper providers.
Also, there are two main ways to achieve a lower price for customers: convincing a group of doctors and hospitals to discount their prices even more than usual in exchange for access to a captive group of patients, or urging hospitals to do a better job of helping patients avoid expensive hospital procedures - then sharing any savings between the hospitals and the insurance plan.
WellPoint's unit in Indiana, Anthem Blue Cross and Blue Shield, is exploring all those approaches, said Dr. David Lee, Anthem's vice president of health care management.
"Historically in Indiana, we know most patients prefer a broad network," Lee said. "However, we have seen this increase in appetite from patients, because of the relative unaffordability of health care, to make some trade-offs. That appetite is growing and has been so over the last few years."
The shift is significant because HMO restrictions sparked backlash that led to broad provider networks - something Anthem has excelled at more than any other insurer in Indiana. And to this day, employers remain wary of angering employees by offering an overly restrictive health plan.
Anthem is focused now on using narrow networks as the basis for the health plans it will offer through the state-run health insurance exchange, which is scheduled to start in 2014.
Many expect price to be the key driver of buying decisions in the exchange. And narrow networks pose less of a challenge for individual buyers, because they won't be forced by an employer into a health plan that does not include the doctor or hospital they want.
Lee said Anthem, based on research of narrow networks in other markets, thinks the upfront price will need to be at least 10 percent cheaper than broad network plans in order to attract a meaningful mass of customers.
"If it's less than 10 percent, as we've done some research, then most consumers are not interested in reducing their choice," Lee said.
Anthem's main rival in Indiana, UnitedHealthcare, is also considering bringing narrow networks to the Indianapolis area, after the Minnesota-based company has seen some success in other markets.
For example, UnitedHealthcare launched a product called Core in 2010 in Chicago and northwestern Indiana. The network includes 97 of the 121 hospitals in the Chicago market.
"UnitedHealthcare is currently exploring the strategy in central Indiana, as we have had high-performance networks successfully implemented and well-received in other markets across the country," spokeswoman Jessica Koestner said in an e-mail. "It's imperative that high-performance networks focus on quality, rather than simply achieving a lower price."
Not everyone is confident there will be a market for health plans based on narrow networks.
In the three years Indiana University has offered a health plan "narrowed" to only physicians and hospitals in the IU Health Quality Partners network, only 1,000 of its 17,000 workers have signed up.
Premiums for family coverage in IU's narrow network plan total $2,233 per year for an employee making less than $50,000 per year. That's savings of 10 percent compared with the most expensive preferred provider organization plan IU offers, but still nearly twice as expensive as the premiums for a high-deductible health plan IU offers.
"It's a little early to tell," said Dan Rives, director of human resources at IU, which is a separate organization from IU Health.
Vicki Perry, CEO of Advantage Health Solutions Inc., agrees. The Indianapolis-based health insurer is one of few surviving local HMOs formed in the 1980s and 1990s. It still offers health plans that include a limited number of doctors and require patients to see a primary care physician before receiving a referral to a specialist.
"Employers feel that need to have access, without any penalty, to the tertiary providers," Perry said, using industry jargon for large, specialized hospitals. "You're going to have very limited market opportunity" for a narrow network plan.
That's her read on the Indianapolis employer market now. But in three to five years, she said, things could change. That's because the 2010 health reform law, the Patient Protection & Affordable Care Act, is pushing hospitals and doctors to take financial responsibility for keeping a specific group of patients healthy.
The idea is to give hospitals and doctors incentives to work together to provide care rather than making patients navigate the complexities and maddening gaps in the health care system. The hope is that better coordinated care will catch health problems and treat them inexpensively before they erupt and lead to expensive hospitalization.
"If we have the ability to go back to physician-driven, patient-centric models of care, that means you don't need every provider in the network," Perry said. "That was the underpinning of the HMOs."
It's that goal that is driving Community Health Network, an Indianapolis-based hospital system, in its internal discussions about offering a narrow network health plan to employers.
Tom Fischer, Community's chief financial officer, estimates that merely cutting out providers or restricting access to them might save employers 10 percent to 15 percent.
"But the real improvement is to have a network of providers working together, in collaboration with the employer and the employees," he said, adding, "At the end of the day, we all have to work together to lower the health care spend."
Fischer expressed confidence that Community, which has been trying to convert itself into a low-cost, high-volume provider, can show it's a system that employers and insurers want to work with - not one they want to cut out.
That might be less true for the city's larger hospital systems - Franciscan St. Francis Health, IU Health and St. Vincent Health - which often charge more for their services.
For example, Anthem's Blue Access PPO plan typically pays at least $11,700 to deliver a baby via Caesarean section at one of Community's hospitals.
Typical payments are only slightly higher at IU Health facilities, running at least $11,900 at most of its hospitals and at least $12,500 at IU Health North.
But at St. Vincent hospitals, a C-section delivery costs at least $13,100 - 12 percent more than at Community. And at Franciscan St. Francis Health's hospitals, a C-section delivery costs at least $15,800 - a 35-percent premium over Community's charge.
On other procedures, however, IU Health and St. Vincent are the highest-cost providers.
In other cities, insurers have tried to cut out hospital systems affiliated with a medical school. For example, Highmark Blue Cross and Blue Shield in Pennsylvania recently launched a narrow network plan that excludes most of the hospitals operated by University of Pittsburgh Medical Center.
Highmark, which retained UPMC's children's hospital in its network, still promised savings as high as 25 percent if patients limit their choices to mostly non-UPMC hospitals and doctors.
Atul Grover, chief public policy officer for the Association of American Medical Colleges, said teaching hospitals have had concerns for a long time about losing insurance-carrying patients to narrower networks.
"The private sector has limited interest in paying for the social missions of academic medical centers," Grover said.
Part of the fees at teaching hospitals help cover the training of new doctors.
Also, a lot of research centers and specialized clinics, such as geriatric mental health centers or pediatric neurology departments, lose money.
"Everybody appreciates it, but people don't necessarily want to pay for it," he said.
The example in Pittsburgh would suggest that IU Health, which is affiliated with the IU School of Medicine, would be a prime target to be cut out of narrow networks in Indianapolis.
Parker, the president of IU Health Plans, acknowledged that as a possibility. But IU Health has never achieved the kind of dominate market share in Indianapolis as UPMC did in Pittsburgh.
Parker's predecessor, Alex Slabosky, who retired last year as CEO of IU Health Plans, thinks it's more likely that health insurers in Indianapolis will simply ask for bids from the four largest hospital systems here - then form the two lowest bidders into a narrow network.
But Slabosky still has doubts about narrow networks working in Indianapolis. He was CEO of the M-Plan HMO when it started in 1989 with a network limited to Methodist Hospital and its doctors. But M-Plan was quickly forced by employers to add most of the other Indianapolis-area hospitals.
Reluctance to curb employees' choices will still make doing narrow networks in Indianapolis difficult, Slabosky added, because no single hospital system thoroughly covers the wide geographies where workers at Indianapolis companies live.
It's more likely to see them crop up in cities with just two major hospital systems, such as Lafayette, Kokomo, Bedford and Anderson.
"In these two-hospital towns, the hospitals might be more willing to do something on a limited network, and the employers might be receptive," Slabosky said. "In Indianapolis, you're drawing people from all over," he added. "It's going to be more difficult to give up choice."
Insurers form health plans based on a network of hospitals and doctors, which agree to discount their prices to get access to the insurer's customers.
In recent history, most insurers have built broad networks with as many choices of doctors and hospitals as possible. Now they're trying to build narrow networks with fewer care givers, to achieve lower prices.
How to build a narrow network
Option 1: Cut out the highest-cost hospitals and doctors to ensure that patients visit only low- and moderate-cost providers.
How: The insurer covers most of its patients' bills at Hospital A, which is in the narrow network, but pays nothing at all if patients visit Hospital B, which is out of network.
Option 2: Put hospital systems into payment tiers, making one hospital system cost more to patients than another hospital system does.
How: Make a patient who visits Hospital A, which is in network, pay a co-pay of $20 and 10 percent of the total bill. But make a patient who visits Hospital B, which is out of network, pay a $40 co-pay and 40 percent of the total bill.
How to reduce costs in a narrow network
Option 1: Create a plan that steers patients from Hospital B to Hospital A, using the incentives at left. Then ask Hospital A for a larger-than-usual discount to be in the plan.
Option 2: Steer a group of patients to Hospital A, using the incentives at left, and give Hospital A a target cost to treat those patients. Count on Hospital A to work to keep those patients healthier and out of the hospital. Share savings from fewer hospitalizations between the insurance plan and Hospital A. If Hospital A fails to save money, it covers some or all of the losses.