Product differentiation among health maintenance organizations: Causes and consequences of offering open-ended products

Open-ended products that allow an HMO enrollee to use providers who are not affiliated with the HMO have become an important component of the Clinton administration's health reform proposal, because these products maintain consumer freedom of choice of any provider. However, little is known about the consequences of offering an open-ended product from an organizational standpoint. This paper uses a theory of 'spatial competition' to examine the decisions of health maintenance organizations to offer an open-ended product and the effect of offering an open-ended product on their enrollment.