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Why do narrow network plans cost less?

Abstract Narrow network health insurance plans have been shown to have lower premiums and lower costs to insurers. This paper decomposes and quantifies the magnitudes for various mechanisms by which networks may reduce premiums and costs. Using data on the Colorado non-group market, we examine three mechanisms through which a narrow network might achieve lower costs: (1) enroll a population with lower utilization, (2) negotiate lower prices, or (3) steer patients away from high-cost hospitals. We find that all three mechanisms play a role. Narrow plans are partly able to achieve lower costs because they both steer patients to lower cost hospitals and, for a given hospital, negotiate lowe...

Read the full post at Wiley: Health Economics: Table of Contents
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