The Myth of Insurance Networks

Now that the federal government has finalized the rule allowing non-network plans onto the ACA exchanges, an old trope is reemerging — that networks are a fundamental part of good insurance. Advocates of network-based insurance claim that networks protect consumers by guaranteeing access to providers, controlling costs, and shielding them from surprise costs.  

In fact, networks frequently fail at all three of these — and holding onto the idea that networks are a sacred part of American healthcare would hold us back from the innovation our health system so desperately needs.

Networks fail on access. Ask anyone who’s tried to establish care with a new primary care physician, or waited months to see a specialist. Getting an appointment is its own obstacle course — one that has nothing to do with whether a provider is technically “in network.” 

Famously, network-based plans have been settling lawsuits for years over “ghost networks” — where there are so few in-network providers that members in need of mental healthcare are forced to seek care out-of-network. In surgery scenarios, it’s common for a surgeon to be in-network while the facilities she performs surgery in, or the anesthesiologist you had no say in, are out-of-network. There’s a telling contradiction buried in all of this: if networks actually created access, regulators wouldn’t need to mandate “network adequacy” standards. By their very design, networks restrict who patients can see. The regulation exists because the problem is structural, not accidental.

The claim that networks control costs misses a more fundamental problem. Even when negotiated prices vary by thousands of dollars between in-network facilities, patients rarely see those prices before they get care. Nobody calls ahead and asks. Cost doesn’t factor into the decision at all. People choose their doctor based on their physician’s recommendation, which hospital system does the best advertising, or which waiting room looks nicer.

Real, outcome-based quality doesn’t drive the decision either — because networks rarely publish that data. The result is a system where cost and quality are both invisible at the moment that matters most. Networks didn’t solve the information problem. They just made everyone feel like someone else was handling it. 

Thanks to federal price transparency regulations, we can now see what insurers are paying — and the numbers are striking. Consider a hernia surgery in New York City. Within the same insurance network, negotiated prices range from $9,003 at Lenox Hill to $14,832 at Mount Sinai West and $15,346 at NYU Langone. But this isn’t as simple as one hospital consistently costing more than another. With a C-section delivery, the pattern flips entirely: Lenox Hill becomes the most expensive at $57,314, while Mount Sinai West comes in at $34,112 and NYU Langone at $36,153. There’s no coherent logic to it — and none of it matters to patients, because patients seldom know any of it before they receive care. Networks can’t control costs when the people making care decisions have little or no access to pricing information. With network-free models, for the first time, patients on ACA exchange plans can actually act on this information — choosing where they get care based on price and quality, not just which hospital happens to be in-network. 

These two myths — that networks guarantee access to care and control costs — lead to the third myth: that networks shield members from surprise costs. 

Whenever care costs more, a portion of that cost is passed directly onto consumers through deductibles and coinsurance. Even for a simple MRI, that difference can be stark. A patient might pay $300 toward their deductible for an MRI at one in-network facility or $900 at another — simply because the negotiated price is higher. 

Anyone getting complex care like surgery is likely to exceed their deductible, and thus be subject to coinsurance, in which they pay a percentage of the cost of care out-of-pocket. 

Consider a $3,000 deductible and $6,000 out-of-pocket maximum with 20% coinsurance. Consider a $3,000 deductible and $6,000 out-of-pocket maximum with 20% coinsurance. For a patient who’s already met their deductible, the coinsurance on that hernia surgery at Lenox Hill would be roughly $1,800. At NYU Langone, it would be $3,069. That’s a 70% difference in what the patient pays — for the same procedure, within the same network.

Because Americans on network-based plans operate under the illusion that networks control costs, they often don’t ask for pricing beforehand. The result is the kind of surprise costs that force many Americans into medical debt — which is now the leading cause of bankruptcy for American families. 

Networks no longer offer the protection or coverage they once did, but so-called “junk insurance” like reference-based pricing plans don’t work either. The choice here isn’t between networks and consumer protection. That’s a false dichotomy.

Consider car dealerships. For decades, cars had to be sold through dealers — the theory being that consumers needed intermediaries to navigate a complicated product. Then Tesla and Rivian proved that direct-to-consumer worked better, and customers overwhelmingly preferred it. Dealers pushed back hard, because their business model depended on the old system. States allowed the direct model anyway, because the consumer case was undeniable. The federal government just made the same call on health insurance.

Legacy network-based insurers are making the same argument dealers made. The network is the intermediary. And just like with car dealers, the intermediary exists to protect itself — not the consumer. The question worth asking is: do we want our health system operating like a car dealership? 

America doesn’t need to choose between networks and chaos. The answer is what works in every other market: give people information and let them make decisions.

When patients know what care costs — and have a real financial reason to pay attention — they make good decisions. They choose high-quality providers. They stop overpaying for brand-name convenience when a better option is down the street. Emergency room visits fall. Prescription adherence goes up. The system gets more efficient without anyone being denied a thing.

This isn’t theoretical. It’s already working in employer-sponsored insurance — and now, with the federal government’s finalization of rules opening the ACA exchanges to non-network plans, it’s coming to the individual market too. Full ACA protections and No Surprises Act coverage remain intact. The only thing a network was ever supposed to do was make healthcare work for patients. There’s now a better way to do that — one that actually puts patients in charge.

Image: Syolacan, Getty Images

This post appears through the MedCity Influencers program. Anyone can publish their perspective on business and innovation in healthcare on MedCity News through MedCity Influencers. Click here to find out how.