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

Abstract

Leveraging the random assignment of over 50,000 Medicaid enrollees in New York, I present causal evidence that narrower networks are a blunt instrument for reducing health care spending. While narrower networks constrain spending, they do so by generating hassle costs that reduce quantity, with modest effects on prices paid to providers. Enrollees assigned to narrower networks use fewer of both needed and unneeded services and are less satisfied with their plans. Using my causal estimates to construct counterfactuals, I identify an alternative assignment policy that reduces spending without harming satisfaction by matching consumers with narrower networks that include their providers. (JEL H51, H75, I13, I18, I38)