Switching to managed care in the small employer market.

In 1993, only 22% of small employers offered a managed care product; by 1995, nearly 70% did. This study uses nationally representative data on small firms in 1993 and 1995 to examine the factors underlying this dramatic shift. Two explanations emerge from the regression work. Adoption of managed care by large employers appears to have served as a signal, certifying the acceptance of managed care among workers. Second, lower prices for managed care products, relative to conventional insurance, increased the adoption of managed care, particularly in 1995. There is little evidence that state insurance reforms prompted the switch, although they may have helped set the stage for it.