What are Network Breadth and Keeping Your Health Plan Worth?: Evidence from Covered California

Abstract

The Health Insurance Marketplaces have received considerable attention for their narrow network health insurance plans. Yet, little is known about consumer tastes for network breadth and how it affects health plan selection. I estimate demand for health plans in California’s Marketplace, Covered California. Using 2017 individual enrollment data and provider network directories obtained from Covered California, I develop a geospatial measure of network breadth that reflects the physical locations of households and in-network providers. I find that households are sensitive to network breath in their plan choices, and that they tend to stay with their plan from the previous year (i.e., inertia). Overall willingness to pay (WTP) to switch from a narrow to a broad network plan is $21.94 in monthly premiums. Variation in this WTP by age indicates that a selection mechanism exists whereby older households sort into broader network plans. I also find that Covered California households are highly premium sensitive, which may be a result of plan standardization regulations in Covered California. Furthermore, I find that switching costs, as measured by the willingness to pay to stay in the same plan in a subsequent year, are $437.86 in monthly premiums on average, indicating that inertia impacts plan choice in the individual health insurance market despite relatively high churn and plan exit.