An analysis of the indivdual market health plans being offered across the U.S.reveals that the trends toward narrowed hospital networks and managed care continue.

1. Hospital networks:
Perspective from four years of
the individual market exchanges
McKinsey Center for U.S. Health System Reform
May 2017
Any use of this material without specific permission of McKinsey & Company is strictly prohibited

2. 2McKinsey & Company
Key takeaways
The proportion of narrowed
networks continues to rise
(53% in 2017, up from 48% in
2014). In the 2017 individual
market, both incumbent carriers
and new entrants carriers
offered narrow networks
predominantly
The trend toward managed
plan design also continues. In
the 2017 silver tier, more than
80% of narrowed network plans,
and over half of the broad
network plans, had managed
designs
Narrowed networks continue to
offer price advantages to
consumers. In the 2017 silver
tier, plans with broad networks
were priced ~18% higher than
narrowed network plans
Consumer choice is becoming
more limited. In 2017, 29% of
QHP-eligible individuals had
only narrowed network plans
available to them in the silver
tier (up from 10% in 2014)
Consumers who select narrowed
networks in 2017 may have less
choice of specialty facilities
(e.g., children’s hospitals) but, in
the aggregate, have access to
hospitals with quality ratings
similar to those in broad
networks
In both 2014 and 2015 (most
recent available data), narrowed
network plans performed
better financially, on average,
than broad network plans did
1 2 3
4 5 6
Definitions of "narrowed networks" and other specialized terms can be found in the glossary at the end of this document.

3. 3McKinsey & Company
The proportion of narrowed networks continues to rise1
52 47
4
4
25 28
19 21
SOURCE: McKinsey Exchange Offering Database
Incumbents are using more narrowed networks
38
0
38
24
53 54 53 47
6 5 5
4
21 23 25
28
20 18 18 21
Carriers that remained in the market
in both years
New entrants
New entrants2 primarily used narrowed
networks
More than half of networks are narrowed
in 2017
National view
TieredUltra-narrow BroadNarrow
Network breadth by carrier status
N = number of networks1,2
1,883 1,703 37
2016 2017 2017 2014 2015 2016 2017
2,410 2,5242,782 1,740
Definitions of "narrowed networks" and other specialized terms can be found
in the glossary at the end of this document.
1 Networks were counted at a state rating area level.
2 We counted a carrier that offers health insurance in two states as two carriers. A carrier was considered a new
entrant in a given state if previously it had offered individual insurance only in one or more other states.

4. 4McKinsey & Company
The shift toward managed design is occurring
in both narrowed and broad network plans
SOURCE: McKinsey Exchange Offering Database
1 Plans based on health maintenance organizations or exclusive provider organizations are considered managed. Those based on preferred
provider organizations or point of service are considered unmanaged.
2 Networks were counted at a state rating area level.
3 When multiple silver plans were available on a single network, we used the plan type associated with the lowest-price silver plan in that network.
UnmanagedManaged
Plan type by network breadth1
N = number of networks2,3
2
35 31
23
18
65 69
77
82
Narrowed
2014 20162015 2017
1,123 1,061 845954
56 58
43 41
44 42
57 59
Broad
2014 20162015 2017
1,548 1,301 7981,144
Definitions of "narrowed networks" and other specialized terms can be
found in the glossary at the end of this document.

5. 5McKinsey & Company
Narrowed network plans remain more price competitive1
SOURCE: McKinsey Exchange Offering Database
1 More consistent price differences across metals may indicate that payors are increasingly basing network price on experience.
2 When a network has multiple plans, the lowest-price plan was used as the price of the network. If there were multiple networks available
for selection as “narrowed,” the narrowest was selected. If there were multiple networks available for selection as “broad,” the broadest
was selected.
3 Difference between plans within the same rating area, carrier, and plan type.
Difference in median premium for broad vs. narrowed networks2,3
%
3
2014
2016
2015
2017
18
22
16
16
Silver
18
17
14
11
Bronze
19
23
15
16
Gold
35
33
23
17
Platinum
Definitions of "narrowed networks" and other specialized terms can be
found in the glossary at the end of this document.

6. 6McKinsey & Company
Increasingly, broad network plans are less likely to be price leaders
1 Price category was defined as the premium gap to the lowest-price product. This is the difference between a
network’s lowest-priced plan and the lowest-priced plan within the same metal tier in the same rating area.
2 Networks were counted at a state rating area level.
Tiered Ultra-narrowBroad Narrow
Networks by price category and breadth1
% of networks in rating areas with at least 1 narrowed network2
3
37
44
46
50
8
13
6
5
29
26
25
21
26
17
23
24
2014
Lowest
price
0–10%
above
lowest
>35%
above
lowest
11–35%
above
lowest
34
44
52
63
6
7
4
4
32
27
26
18
28
22
18
15
30
38
48
60
7
5
5
3
37
36
26
21
26
21
21
16
17
33
43
47
7
5
2
7
45
36
30
25
31
26
25
21
2015 2016 2017
Definitions of "narrowed networks" and other specialized terms can be
found in the glossary at the end of this document.
SOURCE: McKinsey Exchange Offering Database

7. 7McKinsey & Company
In the 2017 silver tier, 29% of QHP-eligible individuals had
only narrowed network plans available to them
SOURCE: McKinsey Exchange Offering Database
BothNarrowed only
Consumer access to network breadth among silver plans
% of QHP-eligible consumers (N = 39 million)
4
80 85
74
55
10
5
15
29
10 10 12 16
2014 20162015 2017
Broad only
Definitions of "narrowed networks" and other specialized terms can be found
in the glossary at the end of this document.

8. 8McKinsey & Company
While over half of ultra-narrow networks include an AMC,
less than one-quarter include a children’s hospital
SOURCE: McKinsey Exchange Offering Database
1 Counting networks at a state rating area level.
2 Carriers in any given year.
3 Only tier 1 hospitals assessed.
No AMC AMCInclusion of academic medical centers (AMCs)1
% of networks in rating areas that contain at least 1 AMC2,3
5
No CH CHInclusion of children’s hospitals (CHs)1
% of networks in rating areas that contain at least 1 CH2,3
50 50 51 53
50 50 49 47
Ultra-narrow
155 166172 121
2014 2015 2016 2017
71 71 69 72
29 29 31 28
Narrow
205 259266 205
2014 2015 2016 2017
81 71 78 71
19 29 22 29
Tiered
53 4148 28
2014 2015 2016 2017
96 94 93 93
4 6 7 7
Broad
355 331390 199
2014 2015 2016 2017
19 19 28 23
81 81 72 77
Ultra-narrow
95 115119 78
2014 2015 2016 2017
53 60 54 61
47 40 46 39
Narrow
116 155151 123
2014 2015 2016 2017
65
47 50 40
35
53 50 60
Tiered
20 1819 10
2014 2015 2016 2017
83 90 79 84
17 10 21 16
Broad
127 133153 80
2014 2015 2016 2017
Definitions of "narrowed networks" and other specialized terms can be found in the
glossary at the end of this document.

9. 9McKinsey & Company
Ratings data suggest there is little difference in hospital quality between
narrowed and broad networks
SOURCE: McKinsey Exchange Offering Database, CMS Hospital Compare Data 2017, 2016 American Hospital Association (AHA) Database
1 Total number (N) of networks varies across the metrics based on CMS data availability. The “Total” score is a weighted
average based on the number of inpatient admissions for each in-network hospital in a given network breadth. In 2017,
CMS reduced the weights for “Clinical process” an “Outcomes” and added the “Safety” score.
2 Reflects all AHA hospitals participating in exchange networks for which CMS hospital performance data was available.
Hospital quality by network breadth1
Weighted-average 2017 CMS hospital performance scores
5
TieredUltra-narrow BroadNarrow
2.9 3.0 2.9 2.9
Clinical process
N = 1,548
2.9
8.7 8.1 8.2 8.7
Safety
N = 1,462
8.8
34.8 32.3 30.2
33.7
Total
N = 1,548
33.3
8.6
8.0
7.5
8.2
Patient experience
N = 1,548
8.1
10.1 10.4
9.5 10.1
Outcomes
N = 1,525
10.1
6.4
3.7
2.8
5.1
Efficiency
N = 1,548
4.8
National average2
Definitions of "narrowed networks" and other specialized terms can be
found in the glossary at the end of this document.

10. 10McKinsey & Company
Carriers with narrowed networks performed better financially, on average6
Post-3R, post-tax individual market financial metrics among exchange carriers
Weighted-average by QHP membership1,2
-2
-7
-8
-9
-11
-15
Post-3R post-tax
margins, %
Risk adjustment,
%3
Reinsurance,
%
Risk corridors,
%
Claims
PMPM, $
-6
-3
0
-2
1 Carrier performance was determined at the NAIC/HIOS (plan ID) state and entity level. Analysis includes only entities HIOS ID’s associated with on-exchange plans in given year, with >1K 2014 QHP members.
2 Network breadth for each entity was rolled up to the state level (from county) using the QHP-eligible population and network associated with the lowest-price silver plan. Each state-level entity is then associated with
their respective breadth category (broad, narrow, ultra-narrow). The financial metrics for all entities in each breadth category are weighted by their 2014 QHP lives, obtained from CMS MLR reports.
3 Risk adjustment does not total to 0 as data reflects only those entities with on-exchange presence in 2014. Negative values indicate payment into the program.
4 The ultra-narrow category includes 48 entities (18 with positive margins), 12% of the premiums among exchange entities (post-3R, post-tax margin as percentage of premium ranged from -81% to 17%).
5 The narrow category includes 127 entities (37 with positive margins), 55% of the premiums among exchange entities (post-3R, post-tax margin as percentage of premium ranged from -157% to 31%).
6 The broad category includes 132 entities (28 with positive margins), 32% of the premiums among exchange entities (post-3R, post-tax margin as percentage of premium ranged from -99% to 27%).
13
17
18
8
12
13
Ultra-
narrow4
Narrow5
Broad6
20152014
2
-11
301
307
346
292
339
393
0.5
-0.6
0
0
-0.2
-0.1
Definitions of "narrowed networks" and other specialized terms can be found in the glossary at the end of this document.
SOURCE: McKinsey Exchange Offering Database, CMS Hospital Compare Data 2017, 2016 American Hospital Association (AHA) Database

11. 11McKinsey & Company
Glossary
Network types
▪ Broad network: More than 70% of hospitals in a rating area participate in this
network.
▪ Narrow network: More than 30% and no more than 70% of hospitals
participate.
▪ Ultra-narrow network: No more than 30% of hospitals participate.
▪ Tiered network: Any network with multiple levels of in-network cost-sharing
for hospital services.
▪ Narrowed networks: Narrow, ultra-narrow, and tiered networks, unless
otherwise noted.
Note: Only hospital networks are considered in these analyses. (Physician networks
are not covered.) If a network is tiered, only tier 1 hospitals were included in an
analysis.
Plan types (which typically vary in their gatekeeping arrangements and out-
of-network cost sharing)
▪ HMO (health maintenance organization): A plan that typically offers a primary
care physician who acts as a gatekeeper to other services and referrals; it
usually provides no coverage for out-of-network services, except in
emergency or urgent care situations.
▪ EPO (exclusive provider organization): A plan similar to an HMO that usually
provides no coverage for any services delivered by out-of-network providers
or facilities except in emergency or urgent care situations; however, it
generally does not require members to use a primary care physician for in-
network referrals.
▪ PPO (preferred provider organization): A plan that typically allows members
to see physicians and get services that are not part of a network, but out-of-
network services often require a higher copayment.
▪ POS (point-of-service plan): A hybrid of an HMO and a PPO; it offers an
open-access model that may assign members to a primary care physician
and usually provides partial coverage for out-of-network services.
Abbreviations used
 AMC: Academic medical center
 CMS: Centers for Medicare and Medicaid Services
 DMHC: Department of Managed Healthcare
(California)
 HIOS: Health Insurance Oversight System
 MLR: Medical loss ratio
 NAIC: National Association of Insurance Commissioners
 QHP: Qualified health plan
 PMPM: Per member per month
 SHCE: Supplemental Health Care Exhibit
 3R: Risk adjustment, reinsurance, and risk corridors

12. 12McKinsey & Company
Methodology and sources
The findings described in this document are based on publicly available data.
Pricing: Individual exchange premiums were obtained from state-based exchange
websites and CMS/healthcare.gov public use files. For analyses involving comparisons
of network premiums, unless otherwise noted, if a network is associated with multiple
plans we consider only the lowest-price plan in each metal tier when comparing that
network with other networks. Premiums are based on a 40-year-old single non-smoker.
Hospitals: All hospital data was obtained, as is, from carrier website provider search
tools available to consumers. Hospital network data between 2014 and 2017 was
collected from carrier websites. Our analysis focused only on acute care facilities that
are defined by the American Hospital Association (AHA) as general medical and
surgical; surgical; cancer; heart; eye, ear, nose, and throat; orthopedic; or children’s
general hospitals. In order to effectively compare hospital inclusion in networks, we
also identified each hospital’s unique AHA ID through a combination of geospatial
distance matching, approximate string matching, and manual verification.
Networks: Network breadth is calculated for each CMS rating area, where available,
by taking the number of hospitals that are in-network for the lowest-actuarial-value
cost-sharing network tier (only applicable for tiered networks) in a given rating area,
divided by the total number of hospitals that are in the rating area. Network breadth
definitions are outlined in the glossary. Adjustments were made to CMS rating area
definitions for Arkansas, Idaho, Massachusetts, and Nebraska to convert their 3-digit
zip rating area definitions to a county-based definition. These rating area adjustments
were made to be identical to (for Arkansas, Idaho, and Nebraska), or as close as
possible to (for Massachusetts), the adjustments made in the healthcare.gov exchange
database files. In general, counties were assigned to the rating area in which a plurality
of the county’s population reside.
Financials: All our financial findings are based on publicly available sources. Individual
performance and financials were obtained from MLR reports, SHCE filings, DMHC
filings, and CMS 2014 and 2015 3R reports. We analyzed all available data for 2014
and 2015 carriers with more than 1,000 individual lives. Profitability is based on
reported post-tax, post-3R (reinsurance, risk corridor, and risk adjustment) operating
margin. Risk adjustment and reinsurance were obtained directly from the CMS
September 17, 2015, reports titled “Summary Report on Transitional Reinsurance
Payments and Permanent Risk Adjustment Transfers for the 2014 Benefit Year.” Risk
corridor details were obtained from carrier reports. Carrier-level risk corridor information
in the quarterly reports was occasionally found to be outdated with regard to CMS’s
most recent risk corridor announcement. We independently calculated to verify and
update the amounts at the carrier level.
Plan types: Plan types reported were taken directly from exchange websites and
Summary of Benefits and Coverage (SBC) documents. Plan type definitions are
outlined in the glossary
Previous publications
 Hospital networks: Perspective from three years of exchanges
 Hospital networks: Evolution of the configurations on the 2015 exchanges
 Hospital networks: Updated national view of configurations on the 2014
exchanges