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What Difference Does a Health Plan Make? Evidence from Random Plan Assignment in Medicaid

Author

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  • Michael Geruso
  • Timothy J. Layton
  • Jacob Wallace

Abstract

Exploiting the random assignment of Medicaid beneficiaries to managed care plans, we find substantial plan-specific spending effects despite plans having identical cost sharing. Enrollment in the lowest-spending plan reduces spending by at least 25 percent—primarily through quantity reductions—relative to enrollment in the highest-spending plan. Rather than reducing "wasteful" spending, lower-spending plans broadly reduce medical service provision—including the provision of low-cost, high-value care—and worsen beneficiary satisfaction and health. Consumer demand follows spending: a 10 percent increase in plan-specific spending is associated with a 40 percent increase in market share. These facts have implications for the government's contracting problem and program cost growth.

Suggested Citation

  • Michael Geruso & Timothy J. Layton & Jacob Wallace, 2023. "What Difference Does a Health Plan Make? Evidence from Random Plan Assignment in Medicaid," American Economic Journal: Applied Economics, American Economic Association, vol. 15(3), pages 341-379, July.
    • Handle: RePEc:aea:aejapp:v:15:y:2023:i:3:p:341-79
    DOI: 10.1257/app.20210843
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    Cited by:

    1. Timothy Layton & Ellen J. Montz & Mark Shepard, 2017. "Health Plan Payment in U.S. Marketplaces: Regulated Competition with a Weak Mandate," NBER Working Papers 23444, National Bureau of Economic Research, Inc.
    2. Lee, Ajin, 2025. "How does medicaid managed care affect provider behavior? New evidence from spillovers on private health care," Journal of Public Economics, Elsevier, vol. 248(C).
    3. Layton, Timothy J. & Politzer, Eran, 2025. "The dynamic fiscal costs of outsourcing health insurance - evidence from Medicaid," Journal of Public Economics, Elsevier, vol. 247(C).
    4. Politzer, Eran, 2025. "A change of plans: Switching costs in the procurement of health insurance," Journal of Health Economics, Elsevier, vol. 102(C).
    5. Benjamin R. Handel & Jonathan T. Kolstad, 2021. "The Affordable Care Act After a Decade: Industrial Organization of the Insurance Exchanges," NBER Working Papers 29178, National Bureau of Economic Research, Inc.
    6. Calvin Ackley & Abe Dunn & Eli Liebman & Adam Hale Shapiro, 2025. "Are Medicaid and Medicare Patients Treated Equally?," Working Paper Series 2024-14, Federal Reserve Bank of San Francisco.
    7. Amitabh Chandra & Evan Flack & Ziad Obermeyer, 2021. "The Health Costs of Cost-Sharing," NBER Working Papers 28439, National Bureau of Economic Research, Inc.
    8. Desai, Sunita M. & Padmanabhan, Prianca & Chen, Alan Z. & Lewis, Ashley & Glied, Sherry A., 2023. "Hospital concentration and low-income populations: Evidence from New York State Medicaid," Journal of Health Economics, Elsevier, vol. 90(C).
    9. Timothy Layton & Alice K. Ndikumana & Mark Shepard, 2017. "Health Plan Payment in Medicaid Managed Care: A Hybrid Model of Regulated Competition," NBER Working Papers 23518, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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