What Difference Does a Health Plan Make? Evidence from Random Plan Assignment in Medicaidt

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 asso-ciated 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)