According to conventional wisdom, the growth of health insurance is partly responsible for the rise in physicians' fees; however, to date, convincing empirical evidence is lacking. A standard model of physician fee determination yields unambiguous predictions about insurance effects on fees. Empirical evidence, based on national interview surveys of physicians, shows insurance does affect fees in the predicted direction. Insurance parameter estimates imply that a 1.00 increase in an insurer's fee schedule raises physicians' fees somewhere between 0.13 and $0.35 on average. The higher fees could be associated with higher quality, an issue discussed in the last section.
