Narrow MA networks reduce cost at what price?

More than one-third (35 percent) of Medicare Advantage enrollees were in “narrow” network plans, which insurers create to greater control the costs and quality of care provided to enrollees in the plan. According to a Kaiser Family Foundation (KFF) report, the size and composition of Medicare Advantage provider networks is particularly important to enrollees when they have an unforeseen medical event or serious illness. As of 2017, 19 million of the 58 million people on Medicare are enrolled in a Medicare Advantage plan, yet KFF noted that little is known about their provider networks.

Accessing this information may not be easy for enrollees and comparing networks could be especially challenging. The report noted that beneficiaries could face significant costs if they unknowingly went out-of-network. In addition to the differences across plans, the report discussed questions for policymakers about the potential for wide variations in the healthcare experience of Medicare Advantage enrollees across the country.


KFF examined data from 391 plans, offered by 55 insurers in 20 counties, which accounted for 14 percent of all Medicare Advantage enrollees nationwide in 2015. In addition to the narrow network plans, Medicare Advantage networks included less than half (46 percent) of all physicians in a county, on average. The network size also varied greatly among Medicare Advantage plans offered in a given county.

For example, while enrollees in Erie County, NY had access to 60 percent of physicians in their county, on average, 16 percent of the plans in Erie had less than 10 percent of the physicians in the county while 36 percent of the plans had more than 80 percent of the physicians in the county. Access to psychiatrists was more restricted than for any other specialty. Medicare Advantage plans had 23 percent of the psychiatrists in a county, on average; 36 percent of plans included less than 10 of psychiatrists in the county. Some plans provided relatively little choice for other specialties as well—20 percent of plans included less than 5 cardiothoracic surgeons, 18 percent of plans included less than 5 neurosurgeons, 16 percent of plans included less than 5 plastic surgeons, and 16 percent of plans included less than 5 radiation oncologists.

Conversely, broad network plans tended to have higher average premiums than narrow network plans, and this was true for both HMOs ($54 versus $4 per month) and PPOs ($100 versus $28 per month).

KFF noted that CMS should consider strategies to improve the quality of information available to current and prospective Medicare Advantage enrollees. For instance, accurate, up-to-date provider directories to inform beneficiaries as they choose plans, along with the agency’s proposal to review all Medicare Advantage networks at least every three years.

Wrap-around Medicaid gives states administrative headaches

Medicaid premium assistance, where Medicaid acts as wrap-around coverage for a private health insurance plan, is administratively complex for states and may not work well. In an issue brief, the Kaiser Family Foundation (KFF) considered what is known about wrap-around Medicaid coverage, and looked at financial implications of such a program.

Wrap arounds

According to KFF, states with Medicaid premium assistance programs use Medicaid funds to purchase private coverage for Medicaid beneficiaries. Federal law requires these programs to make the purchased private coverage on par with what the state’s Medicaid program would cover, but private insurance generally covers less than Medicaid and requires more out-of-pocket payments. Therefore, states with these programs must provide supplemental benefits and cost-sharing protections, known as “wrap arounds,” to insure that cost sharing does not exceed Medicaid limits. In general, states with these programs have low enrollment rates, and therefore, there is limited data available to determine how well the programs work.

Administrative complexity

States have found that Medicaid premium assistance programs require a lot of administrative work to determine exemptions, track and manage cost sharing under multiple private plans, and track wrapped covered benefits. The administrative burden led multiple states to discontinue Medicaid premium assistance programs and to merely use their own managed care delivery systems. However, that burden can be minimized. When Arkansas created its Medicaid premium assistance program under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), it contracted with a limited number of standardized plans. The standardization made it easier for the state to track and manage the wrap-around payments.


KFF looked at legislative proposals that would expand wrap-around Medicaid coverage and noted that, in order for such a program to be effective, it would need adequate federal funding, because such programs are required to be cost effective compared with traditional Medicaid coverage. It also noted that, if these programs were done under a waiver program rather than through traditional Medicaid, the funding would be limited in duration and amount, leaving it uncertain whether the program would be able to continue in the future.

Lingering recession, early ACA provisions, expiring patents slowed health spending growth

In recent years, slower growth in health care spending has been somewhat attributed to a check on growth in costs for treating diseases. The Kaiser Family Foundation and the United States Bureau of Economic Analysis reviewed health spending in the last several years, finding that the recession, the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), and expiring drug patents worked together to slow health spending in 2011 and 2012.

Disease spending

The brief notes that information on disease spending has only been analyzed in recent years, which does not allow for much comparison over time. Health spending growth overall during 2011 and 2012 was around 4 percent per capita, comparable with the “slowdown period” (2005 to 2010), but cost per case, known as the disease-based price index, grew even slower: 2.3 percent in 2011, and 2.1 percent in 2012.

Cost growth varied by disease. During the slowdown period and in recent years, cost per capita remained about the same for routine care. However, cost for nervous system treatment dropped from 6.54 percent to 4.43 percent, while cost to treat neoplasms (cancer) went from 4.69 percent to 1.90 percent.


Evidence shows that while there were some immediate effects on health care spending due to the recession (2008 to 2010), there was also a lagged effect in which health care spending in 2011 and 2012 grew in a similar level to the recession. Some of this can be attributed to drops in employment resulting in shifts away from private insurance toward enrollment in Medicaid or uninsurance, which usually results in lowered use of health care services.

The ACA also impacted health spending in 2011 and 2012, even though some key provisions were not yet implemented. For example, Medicare reduced provider reimbursement rates and the ACA expanded coverage of preventive care services, many of which are classified as routine care. This caused a sharp increase in use of preventive services.

The brief also analyzed the “patent cliff” observed between 2010 and 2012. Many brand-name drugs saw their patents expire during this period, allowing patients to switch to affordable generic versions. This correlated with a drop in cost per case. The major drugs Effexor XR® and Adderall® lost patent exclusivity in 2010 and 2009, respectively. The costs for treating mood disorders fell during this period while more people were being treated, and the costs for treating attention deficient and hyperactivity disorders grew more slowly than in previous years, while more people were seeking treatment.

Part D catastrophic cost protections don’t prevent specialty drug payment disasters

Despite Medicare Part D protections against catastrophic costs, some beneficiaries will pay thousands of dollars out-of-pocket for a single specialty drug in 2016. A new analysis by researchers at Georgetown University and the Kaiser Family Foundation determined that for 12 specialty drugs used to treat four serious health conditions—hepatitis C, multiple sclerosis, rheumatoid arthritis, and cancer—enrollees will pay between $4,000 and $12,000 out of pocket. Further, the analysis found that a “significant share” of the out-of-pocket costs for drugs that cost more than $600 per month can be incurred even after enrollees’ drug spending reaches the drug benefit’s catastrophic threshold.

Part D prescription drug coverage

Medicare Part D includes a gap in coverage between the initial coverage limit of drugs subject to an annual deductible and coinsurance, and catastrophic coverage after an individual incurs out-of-pocket expenses above a certain annual threshold. The gap between the initial coverage limit and catastrophic coverage is known as the “donut hole,” which requires beneficiaries to pay the full costs of certain drugs out of pocket before catastrophic coverage takes effect.

Sections 3301 and 3314 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) and section 1101 of the Health Care and Education Reconciliation Act of 2010 (HCERA) (P.L. 111-152) made Medicare Part D more affordable by gradually closing the donut hole and requiring manufacturers to discount the cost of certain drugs (mostly brand-name drugs) by 50 percent.

Analysis findings

Despite the ACA’s protections, the analysis found that Part D enrollees will pay thousands of dollars out of pocket for a single specialty drug in 2016, even after their drug costs exceed the catastrophic coverage threshold. Part D providers determine which drugs to put on formulary—the list of drugs which are covered by the plan. CMS requires certain drugs to be on formulary, including cancer drugs and at least two drugs in every category or class; beyond those requirements, plans determine their own formularies. According to the analysis, whether a drug is on formulary is the most significant driver of out-of-pocket costs for a specialty drug. Further, specialty drugs, even when on formulary, tend to require prior authorization from the insurance provider and are subject to quantity limits.

The analysis considered 12 specialty drugs, and found that when they are on formulary, the maximum out-of-pocket cost is never more than 10 percent higher than the minimum out-of-pocket cost; however, that amount is still thousands of dollars. Monthly out-of-pocket costs vary widely for both brand-name and generic drugs depending on the plan an individual is enrolled in, making it essential for beneficiaries to consider the medications they require when choosing a plan. Out-of-pocket costs for commonly used brand and generic drugs are often significantly higher when they are off formulary. The analysis found that medial off-formulary costs for six top brands and one top generic drug are at least $200 more per month.