Doctor Switching Costs in Health Insurance

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Date and Time: 
Monday, June 1, 2015
2:00 pm – 3:30 pm
Gordon Dahl
UC, San Diego

We exploit a targeted change in the health insurance offerings of a large employer to evaluate whether individuals are willing to pay more to keep their existing primary care doctor. Beginning in 2011, employees in one of the health insurance plans were given the option of choosing a new plan which had a lower premium in exchange for a more limited network of doctors. For individuals whose doctors were covered under both the old and new plans, we argue this new option strictly dominated, since all other aspects of insurance coverage remained identical and the option value of the larger network was close to zero. We use the choices of these employees to estimate the amount of non-switching due to inertia. Employees whose existing doctors were not covered under the new option had to decide whether to pay more to keep their current doctor. This setting allows us to identify the costs that individuals associate with switching doctors separately from inertia. We estimate that 22% of employees are initially inattentive and that 16% are inattentive a year later, even though they could save between $638 and $1,851 annually by switching to the new plan. A substantial fraction of individuals are willing to pay higher premiums to keep their doctor, even after controlling for inertia, with 35% of employees choosing to pay an average of over $100 extra per month to retain their doctors. These inertia and doctor switching costs vary by income, age, gender, family composition and prior health care utilization patterns. Our findings have important implications for the design of public and private health insurance offerings.