Doctor Switching Costs in Health Insurance

We estimate switching costs in U.S. health insurance coming from three different sources: attachment to one’s existing doctor(s), inertia, and the option value of a larger network. We exploit a targeted change in the health insurance offerings of a large employer to estimate the size of these switching costs. Our setting is unique in allowing us to identify the costs that individuals associate with switching doctors separately from inertia and option value. We estimate that, when a new health plan is introduced, 22% of employees initially exhibit inertia, dropping to 16% of employees a year later, even though they could save between $638 and $1,851 annually by switching to an almost identical, but cheaper plan. About one third of individuals are willing to pay higher premiums to keep their doctor, even after controlling for inertia. The option value of a larger network is near zero in our setting. The 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 health insurance offerings, as well as for private employers who negotiate health plan options on behalf of their employees. In particular, we find that sicker and older individuals exhibit less inertia, but place a greater value on keeping their doctors.