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Controlling Health Care Costs Through Limited Network Insurance Plans: Evidence from Massachusetts State Employees


  • Jonathan Gruber
  • Robin McKnight


Recent years have seen enormous growth in limited network plans that restrict patient choice of provider, particularly through state exchanges under the ACA. Opposition to such plans is based on concerns that restrictions on provider choice will harm patient care. We explore this issue in the context of the Massachusetts GIC, the insurance plan for state employees, which recently introduced a major financial incentive to choose limited network plans for one group of enrollees and not another. We use a quasi-experimental analysis based on the universe of claims data over a three-year period for GIC enrollees. We find that enrollees are very price sensitive in their decision to enroll in limited network plans, with the state's three month "premium holiday" for limited network plans leading 10% of eligible employees to switch to such plans. We find that those who switched spent considerably less on medical care; spending fell by almost 40% for the marginal complier. This reflects both reductions in quantity of services used and prices paid per service. But spending on primary care actually rose for switchers; the reduction in spending came entirely from spending on specialists and on hospital care, including emergency rooms. We find that distance traveled falls for primary care and rises for tertiary care, although there is no evidence of a decrease in the quality of hospitals used by patients. The basic results hold even for the sickest patients, suggesting that limited network plans are saving money by directing care towards primary care and away from downstream spending. We find such savings only for those whose primary care physicians are included in limited network plans, however, suggesting that networks that are particularly restrictive on primary care access may fare less well than those that impose only stronger downstream restrictions.

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  • Jonathan Gruber & Robin McKnight, 2014. "Controlling Health Care Costs Through Limited Network Insurance Plans: Evidence from Massachusetts State Employees," NBER Working Papers 20462, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20462
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    References listed on IDEAS

    1. Baicker, Katherine & Chernew, Michael E. & Robbins, Jacob A., 2013. "The spillover effects of Medicare managed care: Medicare Advantage and hospital utilization," Journal of Health Economics, Elsevier, vol. 32(6), pages 1289-1300.
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    Cited by:

    1. Leemore Dafny & Christopher Ody & Matt Schmitt, 2017. "When Discounts Raise Costs: The Effect of Copay Coupons on Generic Utilization," American Economic Journal: Economic Policy, American Economic Association, vol. 9(2), pages 91-123, May.
    2. Drake, Coleman, 2019. "What are consumers willing to pay for a broad network health plan?: Evidence from covered California," Journal of Health Economics, Elsevier, vol. 65(C), pages 63-77.
    3. Evan Gee & Craig Peters & Jeffrey M. Wilder, 2019. "The Year in Review: Economics at the Antitrust Division, 2018–2019," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(4), pages 537-550, December.
    4. Bunnings, C,; & Schmitz, H,; & Tauchmann, H,; & Ziebarth, N.R,;, 2015. "How Health Plan Enrollees Value Prices Relative to Supplemental Benefits and Service Quality," Health, Econometrics and Data Group (HEDG) Working Papers 15/02, HEDG, c/o Department of Economics, University of York.
    5. Brett Lissenden, 2019. "The effect of cancer diagnosis on switching health insurance in medicare," Health Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 339-349, March.
    6. Determann, Domino & Lambooij, Mattijs S. & de Bekker-Grob, Esther W. & Hayen, Arthur P. & Varkevisser, Marco & Schut, Frederik T. & Wit, G. Ardine de, 2016. "What health plans do people prefer? The trade-off between premium and provider choice," Social Science & Medicine, Elsevier, vol. 165(C), pages 10-18.
    7. Mark Shepard, 2016. "Hospital Network Competition and Adverse Selection: Evidence from the Massachusetts Health Insurance Exchange," NBER Working Papers 22600, National Bureau of Economic Research, Inc.
    8. Keith Marzilli Ericson & Amanda Starc, 2015. "Measuring Consumer Valuation of Limited Provider Networks," American Economic Review, American Economic Association, vol. 105(5), pages 115-119, May.
    9. Randall P. Ellis & Wenjia Zhu, 2016. "Health Plan Type Variations in Spells of Health-Care Treatment," American Journal of Health Economics, University of Chicago Press, vol. 2(4), pages 399-430, Fall.
    10. van den Broek-Altenburg, Eline M. & Atherly, Adam J., 2020. "The relation between selective contracting and healthcare expenditures in private health insurance plans in the United States," Health Policy, Elsevier, vol. 124(2), pages 174-182.
    11. Whaley, Christopher M. & Brown, Timothy T., 2018. "Firm responses to targeted consumer incentives: Evidence from reference pricing for surgical services," Journal of Health Economics, Elsevier, vol. 61(C), pages 111-133.
    12. Jonathan Gruber, 2017. "Delivering Public Health Insurance through Private Plan Choice in the United States," Journal of Economic Perspectives, American Economic Association, vol. 31(4), pages 3-22, Fall.
    13. Higuera, Lucas & Carlin, Caroline S. & Dowd, Bryan, 2018. "Narrow provider networks and willingness to pay for continuity of care and network breadth," Journal of Health Economics, Elsevier, vol. 60(C), pages 90-97.
    14. Christian Bünnings & Hendrik Schmitz & Harald Tauchmann & Nicolas R. Ziebarth, 2015. "How Health Plan Enrollees Value Prices Relative to Supplemental Benefits and Service Quality," Ruhr Economic Papers 0545, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    15. Aouad, Marion & Brown, Timothy T. & Whaley, Christopher M., 2019. "Reference pricing: The case of screening colonoscopies," Journal of Health Economics, Elsevier, vol. 65(C), pages 246-259.
    16. Atwood, Alicia & Lo Sasso, Anthony T., 2016. "The effect of narrow provider networks on health care use," Journal of Health Economics, Elsevier, vol. 50(C), pages 86-98.
    17. Nosal, K.;, 2017. "Two-Sided Matching in Physician-Insurer Networks: Evidence from Medicare Advantage," Health, Econometrics and Data Group (HEDG) Working Papers 17/19, HEDG, c/o Department of Economics, University of York.
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    19. Michael Geruso & Timothy J. Layton & Jacob Wallace, 2020. "Are All Managed Care Plans Created Equal? Evidence from Random Plan Assignment in Medicaid," NBER Working Papers 27762, National Bureau of Economic Research, Inc.

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    JEL classification:

    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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