The relation between selective contracting and healthcare expenditures in private health insurance plans in the United States

•Selective contracting important mechanism to control costs in managed competition insurance markets.•Enrollees of narrow network plans in private insurance market in the U.S. have lower annual total, outpatient, inpatient and drugs expenditures.•Majority of savings due to selective contracting, not limiting access to care.•Results have implications for policymakers who are interested in the effects of selective contracting, often used in managed competition. Many healthcare systems, including The Netherlands, Germany and Switzerland, have incorporated elements of managed competition, whereby insurers compete for enrollees in a marketplace organized or facilitated by a government or governing entity. In these countries, managed competition was introduced with the idea that the system would contain cost growth while maximizing value for consumers and employers. An important mechanism to control costs is selective contracting: the process of contracting providers into a network and offer insurance packages with varying levels of provider coverage. In these systems, enrollees are expected to choose lower cost plans which offer access to only contracted providers in the network. The questions is, however, if restricting provider choice leads to reduced healthcare expenditures. In the United States, enrollees often have a choice between plans with restricted networks of providers and plans that offer more provider choice, where care outside the contracted network of providers is (partly) covered. The purpose of this study is to understand whether insurance plans with restrictions on provider access in the United States have reduced healthcare expenditures and to identify the mechanism by which that reduction occurred. We used data from the Medical Expenditure Panel Survey (MEPS), a nationally representative sample of families and individuals. We estimated expenditures for enrollees in restricted network plans using two-part models and generalized linear models. We found that restricted network plans, on average, save $761 per enrollee. Our results suggest that cost savings due to restricted network plans are largely a result of price reductions rather than utilization reductions, although both play a role in cost savings. When introducing reforms shifting from a supply‐oriented to a demand‐oriented health care system, these findings might be worth considering by other countries.