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Learning and the Value of Information: Evidence From Health Plan Report Cards

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  • Michael Chernew
  • Gautam Gowrisankaran
  • Dennis P. Scanlon

Abstract

We estimate a Bayesian learning model in order to assess the value of health plan performance information and the extent to which the explicit provision of information about product quality alters consumer behavior. We take advantage of a natural experiment in which health plan performance information for HMOs was released to employees of a Fortune 50 company for the first time. Our empirical work indicates that the release of information had a small but statistically significant effect on health plan choices, causing 3.1% of employees to switch health plans. Although consumers were willing to pay an extra $267 per year per below average rating avoided, the average value of the information per employee was only $10 per year. The relatively small impact of the ratings arises because the ratings were estimated to be very imprecise measures of quality. More precise measures of quality could have been more valuable.

Suggested Citation

  • Michael Chernew & Gautam Gowrisankaran & Dennis P. Scanlon, 2001. "Learning and the Value of Information: Evidence From Health Plan Report Cards," NBER Working Papers 8589, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8589
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    Cited by:

    1. Jonathan T. Kolstad, 2013. "Information and Quality when Motivation is Intrinsic: Evidence from Surgeon Report Cards," NBER Working Papers 18804, National Bureau of Economic Research, Inc.
    2. Leemore Dafny & Kate Ho & Mauricio Varela, 2013. "Let Them Have Choice: Gains from Shifting Away from Employer-Sponsored Health Insurance and toward an Individual Exchange," American Economic Journal: Economic Policy, American Economic Association, vol. 5(1), pages 32-58, February.
    3. Leemore Dafny & David Dranove, 2008. "Do report cards tell consumers anything they don't already know? The case of Medicare HMOs," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 790-821, September.
    4. Buchmueller, Thomas, 2006. "Price and the health plan choices of retirees," Journal of Health Economics, Elsevier, vol. 25(1), pages 81-101, January.
    5. Michael Chernew & Gautam Gowrisankaran & Catherine McLaughlin & Teresa Gibson, 2003. "Quality and Employers' Choice of Health Plan," NBER Working Papers 9847, National Bureau of Economic Research, Inc.
    6. repec:mpr:mprres:3849 is not listed on IDEAS

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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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