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

  • Michael Chernew
  • Gautam Gowrisankaran
  • Dennis P. Scanlon
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    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.

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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8589.

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    Date of creation: Nov 2001
    Date of revision:
    Publication status: published as Chernew, Michael, Gautam Gowrisankaran, and Dennis P. Scanlon. "Learning and the Value of Information: Evidence from Health Plan Report Cards." Journal of Econometrics 144, 1 (May 2008): 156-74.
    Handle: RePEc:nbr:nberwo:8589
    Note: HC PR
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    1. Anne Beeson Royalty & Neil Solomon, 1999. "Health Plan Choice: Price Elasticities in a Managed Competition Setting," Journal of Human Resources, University of Wisconsin Press, vol. 34(1), pages 1-41.
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    7. Jeffrey Milyo & Joel Waldfogel, 1998. "The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart," Discussion Papers Series, Department of Economics, Tufts University 9807, Department of Economics, Tufts University.
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    13. Scanlon, Dennis P. & Chernew, Michael & McLaughlin, Catherine & Solon, Gary, 2002. "The impact of health plan report cards on managed care enrollment," Journal of Health Economics, Elsevier, vol. 21(1), pages 19-41, January.
    14. Daniel A. Ackerberg, 2003. "Advertising, learning, and consumer choice in experience good markets: an empirical examination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(3), pages 1007-1040, 08.
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    16. repec:cup:etheor:v:13:y:1997:i:2:p:185-213 is not listed on IDEAS
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