Limiting provider network size has long been a strategy employed by insurance companies to gain bargaining power with providers and keep prices low for consumers. This strategy gained renewed attention with the Health Insurance Marketplace, yet little is known about the extent to which premiums are reduced with reductions in network breadth. In this paper, we explore this relationship among the silver plans offered on the ACA marketplace by linking a unique dataset of physician networks for the silver plans in the 2014 marketplace to data on all silver exchange plans offered. To estimate the effect of network size on plan premiums we estimate a hedonic pricing model with market (rating area) and insurer fixed effects along with controls for plan design. We find a one percentage point increase in network size is associated with a 0.5% increase in premiums which suggests that a one standard deviation drop in network size lowers premiums by 10.5%. For a typical premium is $267, this is a savings of $28/month or $336 per year. Future work will use enrollment data to explore consumer sensitivity to the tradeoff between lower premiums and network quality.
Daniel Polsky, Ph.D.,Executive Director of the Leonard Davis Institute of Health Economics, is a Professor of Medicine in the Perelman School of Medicine and the Robert D. Eilers Professor of Health Care Management in the Wharton School. He currently serves on the Congressional Budget Office’s Panel of Health Advisers and he was the Senior Economist on health issues at the President’s Council of Economic Advisers in 2007-08. He received a Ph.D. in Economics from the University of Pennsylvania in May 1996 and a Master of Public Policy from the University of Michigan in 1989. His research areas include access to health care, workforce, and economic evaluation of medical and behavioral health interventions. He is a coauthor of the book “Economic Evaluation in Clinical Trials” published by Oxford University Press.