Affiliation:
1. UT-Austin and NBER (email: )
2. Harvard University and NBER (email: )
3. Yale School of Public Health (email: )
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. (JEL G22, H51, I13, I18, I38)
Publisher
American Economic Association
Subject
General Economics, Econometrics and Finance