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Unpublished Paper
Do Health Insurers Innovate? Evidence from the Anatomy of Physician Payments
NBER Working Paper No. 21642 (2016)
  • Jeffrey Clemens, University of California - San Diego
  • Joshua D. Gottlieb, University of British Columbia
One of private health insurers' unique roles in the United States is to negotiate physician payment rates on their customers' behalf. When it comes to these rates, do private insurers meaningfully differ from the large public insurer operating alongside them, or is the private sector–which appears so prominent–a mirage? We investigate the frequency with which privately negotiated payments deviate from the government benchmark using two empirical approaches. The first exploits changes in Medicare's payment rates and the second applies ideas from the bunching literature. Although Medicare's rates are influential, we find that prices for 25 percent of physician services, representing 45 percent of spending, deviate from this benchmark. To understand the private market's goals, we examine when these deviations occur and how they look. The Medicare-benchmarked share is higher for services provided by small physician groups. It is lower for capital-intensive care, for which Medicare's average-cost reimbursements deviate most from marginal cost. When relative prices deviate from Medicare's, they adjust towards the marginal costs of treatment. Our results suggest that providers and private insurers coordinate around Medicare's menu of relative payments for simplicity but–when the value at stake is sufficient–do indeed innovate.
Publication Date
April, 2016
Citation Information
Jeffrey Clemens and Joshua D. Gottlieb. "Do Health Insurers Innovate? Evidence from the Anatomy of Physician Payments" NBER Working Paper No. 21642 (2016)
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