What Difference Does a Health Plan Make? Evidence from Random Plan Assignment in Medicaid
83 Pages Posted: 31 Aug 2020 Last revised: 11 May 2022
Date Written: August 2020
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 generates 30% lower spending—driven by differences in quantity—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.
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