Network Deserts: Where Leased Networks Fail, Rural Access Collapses, and What the Alternatives Are

LFP-07.03 | Sharp Analysis | Series 07: The Geography of Level Funded

Most level funded TPAs do not own networks. They lease access from national aggregators or regional carriers. In metropolitan areas, leased networks provide adequate access for most covered services. In rural and exurban areas, the directory may list providers who are not accepting patients, who are hours away, who have closed their practices, or who have terminated their network agreements without the directory reflecting the change.

Network adequacy is the geographic variable with the most direct impact on member experience. The employer purchased coverage in good faith. The member calls the number on the directory card and discovers the access failure in real time. The TPA’s customer service line often has no better information than the outdated directory the member already consulted. Unlike marketplace plans, which must meet federal network adequacy standards under 45 C.F.R. § 156.230, self-funded ERISA plans face no comparable requirement. The regulatory floor that marketplace enrollees have, members of level funded plans do not.

How Leased Networks Work and Where They Break

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The leased network model is the dominant approach for level funded TPAs serving the small group market. National aggregators, including MultiPlan (which encompasses the former PHCS network), First Health, and Zelis, contract with providers nationwide and license that network access to TPAs, health plans, and other payers. The TPA does not negotiate rates directly with providers, does not manage provider relationships, and does not maintain the provider directory. The TPA licenses access to a network that exists independently, was built by the aggregator for its own strategic and financial purposes, and serves multiple payers simultaneously.

The efficiency of the model is real. It allows a TPA with 40 employer clients to offer national network access without building provider contracting infrastructure in every county where members seek care. But the economics that make the leased network model efficient also explain where it fails. Aggregators built their networks for volume markets. A contract with a large hospital system in Cincinnati produces tens of thousands of member-provider transactions per year. A contract with a rural critical access hospital in eastern Kentucky produces hundreds. The economic logic of network contracting favors metropolitan markets and produces thin coverage in low-density geographies.

Directory accuracy compounds the structural thinness of rural networks. A 2018 CMS compliance review of Medicare Advantage plans found that 52% of physician listings contained at least one inaccuracy. Medicare Advantage plans face federal directory accuracy requirements and annual compliance reviews. Self-funded ERISA plans face neither. Research published in Health Affairs found that approximately 20 states have directory accuracy requirements for private plans, but those laws explicitly or effectively exempt self-insured plans under ERISA preemption. The member who calls from an area where the network is thin, relying on directory information that may be months out of date, has no consumer protection equivalent to what applies to other forms of coverage.

The No Surprises Act, enacted as part of the Consolidated Appropriations Act of 2021 and effective January 2022, required marketplace plans to update and verify provider directories every 90 days. Self-funded ERISA plans were not subject to this requirement. A 2025 study published in JAMA examining Pennsylvania ACA marketplace plans found that 40% of providers with inaccurate directory listings still had inaccurate information 540 days after initial identification of the error, even in plans subject to the federal 90-day update requirement. Level funded plan directories receive less regulatory attention than even those.

The Network Desert Map

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Network deserts are not randomly distributed. They map to provider shortage designations, population density, and the economics of provider contracting in rural markets.

HRSA designates Health Professional Shortage Areas based on the ratio of population to providers within a service area. For primary care geographic HPSAs, the threshold is a population-to-provider ratio of at least 3,500 to 1. HRSA reports that approximately 20% of the U.S. population resides in primary care HPSAs. That population is disproportionately rural, tribal, and concentrated in lower-income urban neighborhoods. The shortage is more severe for mental health: over 60% of rural Americans live in designated mental health provider shortage areas, and an estimated 65% of nonmetropolitan counties have no psychiatrist at all.

The overlap between network deserts and level funded employer locations is substantial and non-coincidental. The industries that most commonly produce level funded employer profiles in the small group market, including construction, agriculture, energy extraction, and manufacturing, operate heavily in rural and exurban areas. A pipeline construction company with 35 employees working in western Oklahoma is not an unusual level funded employer profile. Its workers operate in a geography where the leased network has limited presence, where HRSA has designated multiple counties as shortage areas, and where specialist access requires travel to Oklahoma City or Tulsa.

The problem is not limited to the most remote rural areas. Exurban communities, those 30 to 60 miles from major metropolitan centers, fall into a coverage gap that telehealth strategies do not fully address and that urban network density does not reach. A member in a town of 10,000 people may find that the leased network’s directory lists no participating endocrinologist within 50 miles and no participating psychiatrist accepting new patients within 40. The emergency department at the local critical access hospital is in-network because the aggregator maintained a relationship with the hospital. The specialists the member needs to manage a chronic condition are not.

The specialty gap is where the access problem becomes clinically consequential. Primary care shortages are widespread but partially addressed by telehealth for consultation and prescription management. Mental health shortages are severe, geographically concentrated, and only partially amenable to virtual care. Oncology, cardiology, and neurology require in-person examination, imaging, and procedures that cannot be performed remotely. The member with a new cancer diagnosis in a network desert faces a coverage document that promises access to a national network and a reality in which the nearest participating oncologist is 90 miles away and not accepting new patients.

The Alternatives and Their Limitations

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Three alternative approaches to the leased network model exist for employers in network deserts. Each addresses the access problem through a different mechanism. Each carries limitations.

Reference-based pricing eliminates network dependence by changing the reimbursement mechanism rather than expanding the network. The TPA sets reimbursement at a defined percentage of Medicare rates, typically ranging from roughly 100% to 200% depending on service category and geography, rather than paying rates under a negotiated network agreement. The member can seek care from any willing provider. The provider receives the reference-based reimbursement. The network adequacy problem dissolves because there is no network: any provider who accepts the payment is effectively in the plan.

The trade-offs are significant. Providers accustomed to commercial rates well above Medicare may decline to accept RBP reimbursement and may pursue the patient for the difference between their charges and the plan’s payment. Balance billing exposure is the member’s primary risk under RBP arrangements. ERISA preemption limits state balance billing protections for self-funded plan members in ways that create additional exposure relative to fully insured or marketplace coverage. The No Surprises Act provides protections against surprise bills from emergency services and certain air ambulance situations, but the Act does not extend to all balance billing situations that arise under RBP. The employer who adopts RBP to solve the network adequacy problem may create a different problem when employees receive unexpected bills from providers.

Direct provider contracting is the structurally cleanest solution. The TPA negotiates contracts directly with local providers, concentrating on high-cost, high-volume services: the local hospital system, regional surgical centers, orthopedics, and specialty practices with the highest utilization among the employer’s covered population. Direct contracting can include rural providers that national aggregators have not prioritized because those providers’ low transaction volume made contracting economically unattractive for the aggregator. For a TPA with a concentrated client base in a defined rural geography, direct contracting can build a functional network where the leased model has failed.

The limitation is scale and cost. Building and maintaining direct provider relationships requires legal, contracting, and credentialing infrastructure that most small TPAs cannot sustain across dispersed rural geographies. The economics of direct contracting favor TPAs with sufficient volume in a given geography to justify the fixed costs of network development. A TPA with three employer clients in rural West Texas does not have the bargaining position or the economic rationale to negotiate a direct contract with the regional hospital system on terms available to a larger regional TPA with 200 clients in that geography.

Telehealth as primary access addresses the most common service categories in network deserts: primary care, behavioral health, and chronic disease management for conditions amenable to remote consultation and prescription management. The technological and regulatory barriers to telehealth decreased substantially after 2020, and several employer-facing platforms now offer comprehensive virtual primary care programs integrated with level funded plan administration. The limitation is scope. Telehealth cannot substitute for surgery, advanced imaging, emergency care requiring physical intervention, or specialist evaluation requiring physical examination. A behavioral health telehealth program addresses part of the access gap in mental health shortage areas. It does not address oncology, cardiology, orthopedics, or the range of services that produce the largest claims in any employer health plan.

Many TPAs combine approaches: leased networks where the aggregator delivers adequate coverage, RBP in rural areas where the network is thin enough to make the balance billing trade-off worthwhile, direct contracting for specific high-cost facilities where volume justifies the investment, and telehealth to extend primary and behavioral health access. The hybrid approach requires operational sophistication in plan design, member communication, and claims adjudication that most small TPAs have not built.

The Adequacy Standard Level Funded Lacks

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ACA marketplace plans operating under 45 C.F.R. § 156.230 must demonstrate network adequacy before CMS certifies them for sale. The standards include time-and-distance requirements: primary care within 30 minutes or 15 miles in urban areas, 60 minutes or 40 miles in rural areas. Plans failing these standards can be denied certification. The standards are imperfect, the enforcement is not uniform, and directory accuracy problems persist even in regulated markets. But a floor exists.

Level funded plans operating as self-funded ERISA plans face no comparable federal floor. The plan document may promise access to a national PPO network. No regulator tests whether the leased network delivers actual access in the specific counties where the employer’s members live. The state network adequacy laws that exist for fully insured plans generally cannot reach self-funded ERISA plans under preemption analysis. State TPA licensing requirements do not include network adequacy standards for the plans TPAs administer.

This creates an asymmetry that members in underserved geographies experience directly. An employee buying marketplace coverage in a rural county has federal protections requiring the issuer to demonstrate adequate network access before the plan can be certified. An employee covered by the employer’s level funded plan in the same county has the directory, the network card, and whatever access the leased aggregator relationship actually delivers. The employer who purchased the plan in good faith may not discover the gap until the member reports it.

The gap does not require applying marketplace adequacy standards to self-funded plans. The regulatory frameworks are distinct, and ERISA’s preemption of state regulation reflects a deliberate federal policy choice. The gap does require that TPAs represent their network access honestly and that brokers evaluate network adequacy at the county level before recommending coverage. A TPA that markets national network access to a construction company whose workers operate in counties HRSA has designated as shortage areas is making a representation the product cannot keep.