Insurer Innovation and Health Care Efficiency: Evidence from Utah

Using unique administrative data on the entire population of the state of Utah we study the role that specific insurance plans play in health care utilization and outcomes. Despite the important and unique role private insurers play in U.S. health care - 55% of spending flows through private insurance - little is known about whether and how insurers innovate and their role in persistent productivity variation. We develop a simple model that captures a key feature of innovation in the delivery of health care: projects require sunk costs to learn about efficient ways to delivery care in a particular setting for a particular condition. The resulting equilibrium suggests productivity heterogeneity both at the insurer level and by condition, within and across insurers. 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 between insurers dramatically alters total health care spending as well as the underlying way in which care is produced. For example, moving from United Health (UHC) - a large national for-profit firm - to the Blue Cross plan increases spending by 28% on average. This change is akin to moving from the 25th to 75th percentile of regional spending in the U.S., an issue that is much studied in the literature and discussed in policy (e.g. Finkelstein, Gentzkow and Williams, 2016). The lower spending comes both from difference in prices and in the quantity of care. Quantity reductions appear to come from potentially high value services such as drug spending for individuals with chronic conditions as well as low value care. We then assess the short and long run impact of changing plans - and the associated changes in health care utilization - on health outcomes. Combining these estimates we can assess the positive question of productivity variation in competitive markets as well as the normative question of welfare impacts of different insurers.