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

Abstract

We investigate the impact of limited network insurance plans in the context of the Massachusetts Group Insurance Commission (GIC), the insurance plan for state employees. Our quasi-experimental analysis examines the introduction of a major financial incentive to choose limited network plans that affected a subset of GIC enrollees. We find that enrollees are very price sensitive in their decision to enroll in limited network plans. Those who switched spent almost 40 percent less on medical care. This reflects reductions in the quantity of services and prices paid per service. The spending reductions came from specialist and hospital care, while spending on primary care rose. (JEL G22, H75, I11, I13, J45)