The Role of Supply and Demand in Efficient Health Care Delivery: Evidence from Utah

Using unique administrative data on the entire population of the state of Utah we study the impact of High Deductible Health Plans (HDHPs) and access to Intermountain Health Care, a health care delivery system with strong supply-side incentives to improve efficiency. Panel data on the universe of health care claims linked at the individual level to employers allow us to address the endogeneity of insurance plan selection. We study the change in utilization for individuals (i) switching between employers or (ii) employers switching plan offerings. We find that exogenous shifts to Select Health, the insurance plan owned by Intermountain Health Care, dramatically increases exposure to Intermountain's providers. This shift is also associated with increased utilization of primary care and pharmacy spending. Decomposing these effects between prices and quantities, we find the primary change in spending is due to shifts in the quantity of care used, not the price paid. We find large changes in use of high-value drugs for chronic conditions (e.g. statins to lower cholesterol). Intermountain appears to change utilization primarily through organizational factors such as systematically using 90 day refills for chronic medications, rather than individual provider incentives. Using the same strategy, we study HDHPplans and find, similar to prior work (Newhouse and the Insurance Experiment Group (1993), Brot-Goldberg et al. (2015)), that increased demand side incentives reduce spending. These reductions appear to come in equal measure from high- and low-value care. Combined, our results suggest an important avenue for efficient use of health care resources is to focus on supply- rather than demand-side mechanisms.