Price and membership in a prepaid group medical practice

Abstract

Federal interest in prepaid group practices as a means to control rising health care costs in reviving. This article is an empirical study of price and membership at a prepaid group practice among employees of Yale University. This article is the first to estimate the effect of price on the decision for membership in a prepaid group. The probability of joining the prepaid group is estimated to be a function of the relative price of the prepaid group and a conventional third-party insurance plan, the distance of residence to the prepaid group, the perceived quality of services at the prepaid group and the demand for medical services. Our most important finding is that employees' choice is quite sensitive to the relative price of the two plans. This has important implications for federal policy toward prepaid group practices.