Disruptive Innovations are not breakthrough technologies that make good products better. Rather, they are innovations that introduce simplicity, convenience, accessibility, and affordability where complication and high cost are the status quo. Initially, disruptors target less profitable customers who may appear unattractive or inconsequential to industry incumbents. But, with continued improvement, the offering becomes appealing to more and more customers, eventually moving into more mainstream and profitable markets. In doing so, it ultimately  redefines an industry.

In healthcare, insurers offering a less comprehensive network of providers—know as narrow network plans—are taking this disruptive pathway. Emerging from the lower-margin Medicaid Managed Care market, they are now dominating the more financially attractive ACA exchanges. Looking forward, such plans hold the ingredients to grow and appeal to even more profitable customers, and potentially change the face of U.S. healthcare.

Planting the seeds of disruption in Medicaid

Insurers offering narrow networks are starting by building a foothold as a low-cost insurer for those who would otherwise go without coverage. As their offerings improve, they’re reaching “overserved” customers willing to trade a comprehensive network of physicians for affordability. For example, Centene, a narrow network health insurer, is flourishing in the ACA exchange market with more than 1.6 million exchange enrollees, up 35% from a year ago. That makes it the largest insurer nationally in this market.

Centene grew to this stature by first forging its model in the Medicaid Managed Care market, serving low-income individuals and families who would be hard pressed to afford health insurance otherwise. In this market, consumers have little to no other affordable choices, but see the option of Medicaid healthcare coverage with a limited choice of providers as better than the alternative of taking their chances with no coverage at all.

Participating Medicare Managed Care organizations like Centene and Molina Healthcare accept a modest per member per month payment from members for purchasing care on their behalf (known as a capitation payment). Profit margins in the Medicaid Managed Care market are as low as it gets in U.S. healthcare, and in order to profit, expenditures must be kept low.

To survive in such a market, Centene maintains a narrow network of physicians willing to accept low reimbursement rates for care, and has learned how to profit in this context by keeping patients as healthy as possible, and making necessary care as efficient and effective as possible. From this foothold, Centene has been able to solidify and sustain its model with robust coordination of care, and by paying for preventive interventions that effectively manage expenditures for patients suffering from multiple chronic conditions.

With this model, forged in Medicaid Managed Care, Centene has taken its offerings to the higher paying market of the ACA exchanges, and has secured the aforementioned success as market leader—tripling the company’s net income since entering the exchange market in 2014. In some areas of the country, with dwindling options for health plans on the exchanges, Centene is again playing a role as the insurer people are choosing over the prospect of no coverage at all, this time appealing to consumers who earn too much to qualify for Medicaid, but are unable to afford other plans. Centene is also appealing to price-sensitive exchange customers, willing to trade-in their ability to see a long list of physicians in their area for a more affordable narrow network plan with robust care coordination.

But can narrow network plans sustain this path to meet the needs of more demanding customers, like those in the Medicare Advantage, or employer markets? That remains to be seen, but they do have some emerging technology working in their favor.

The role of enabling technologies

Just as faster internet speeds, original content, and predictive modeling propelled Netflix into the home television sets of even the most discerning movie buffs, so can new technology enable lower-priced, narrow network health plans to meet the needs of mainstream healthcare customers—like Medicare Advantage and employer plans.

Technology is a way of combining inputs of materials, information, labor, and energy into outputs of greater value. In the context of narrow network plans, emerging “technologies” are the combination of digital age materials with lower-cost labor to provide care in more convenient sites such as the home and retail clinics.

Increasingly, digital technologies like telemedicine applications are pulling certain types of care away from the hospital—where overhead costs are high—and into the home. Thanks to the convenience they enable, such tools act as a necessary complement to narrow network plans seeking more demanding and higher paying customers.

Then there are retail clinics, also known as convenient care clinics because they’re located in supermarkets and large retail stores, which enable patients to receive care for minor illnesses without an appointment. As opposed to the typical general hospital model, which intends to treat any patient health issue that comes through its door, retail health clinics intentionally keep their overhead cost structure low by being very selective of what procedures can be done within their four walls. By only selecting services that do not require the purchase of budget-busting medical equipment or costly professional expertise, they are able to keep their prices low, and services convenient. As they continue to accumulate more and more medical capabilities that fit within their low fixed cost structure model, the trade-off of a comprehensive physician network for lower premium and narrow network becomes easier for the customer to stomach.

For example, the retail health provider CVS is building new capabilities that may pay off by partnering with health systems to play a larger role in chronic disease management. In so doing, CVS is pulling processes for managing chronic diseases such as diabetes or heart disease into its low overhead convenient care clinics, potentially lowering expenditures for those at-risk for patient health costs.

This progression for narrow network health plans is a classic example of how an innovation can bring affordability to markets where complication and high cost are the status quo. Low-cost narrow networks are rising from the Medicaid Managed Care market, a market that many health insurers ignore, to claim a significant share of the health exchange market. By continuing to exploit convenient care options such as retail clinics and telemedicine, these plans will march into more and more profitable insurer markets, and do their part in changing the face of the healthcare industry.


  • Ryan Marling
    Ryan Marling