What Does a Provider Network Do? Evidence from Random Assignment in Medicaid Managed Care

Abstract

A distinguishing feature of health insurance plans in the United States is the breadth of their provider networks. To study how provider networks impact consumers, I leverage a natural experiment in New York where 50,000 Medicaid recipients were randomly assigned to plans with different provider networks. Assignment to a narrower network reduced healthcare spending and consumer satisfaction, but not quality. I then examine the mechanisms by which narrower networks affect consumers and propose an alternative assignment policy that reduces spending without harming satisfaction. This is achieved by matching recipients with narrower networks that nevertheless include their usual source of care.

Keywords: health economics, health care, Medicaid

JEL Classification: H75, I11, I18