We estimate an insurer-specifi c preference function which rationalizes hospital referrals for privately-insured births in California.
The function is additively separable in: a hospital price paid by the insurer, the distance traveled, and plan and severity-speci c hospital fi xed effects (capturing hospital quality).
We use an inequality estimator that allows for errors in price and detailed hospital-severity interactions and obtain markedly different results than those from a logit.
The estimates indicate that insurers with more capitated physicians are more responsive to price. Capitated plans send patients further to utilize similar-quality lower-priced hospitals; but the cost-quality trade-off does not vary with capitation rates.