Does It Pay to Know Prices in Health Care?

Abstract

H ealth care spending accounts for 18 percent of the United States economy and has grown faster than GDP in 42 of the past 50 years. As a result, containing health care costs has become a primary concern of public policy as well as the private sector. Unlike most markets, consumers know very little about prices in health care. Research in other markets has found that increasing price transparency reduces prices (e.g., Brown and Goolsbee 2002; Goldmanis et al. 2010), but it is not clear the same will be true in health care: health insurance insulates patients from prices, reducing the benefits of switching to a lower priced provider.In this paper, I estimate whether access to and use of price information affects the prices paid for medical care. I use a unique dataset in which the employees of a large firm gain access to price information provided by Compass Professional Health Services (Compass hereafter). The novel feature of the data is a direct measure of search: Compass tracks the use of its price information and so directly measures search.I begin by estimating how access to price information affects the prices paid for care. A subset of the employees were given access to price information in a pilot program to determine whether it was worth purchasing for all of the employees. The employees who gained access early did not sign up, volunteer, or select into the pilot program in any way; they were given access early because they worked for the company's corporate offices. I estimate a differences-in-differences model that takes advantage of this variation in access both across groups and over time. The results suggest that access to price information reduces the average price paid by

Are Health Care Services Shoppable? Evidence from the Consumption of Lower-Limb MRI Scans

“…Previous research has posited that greater cost-sharing may be necessary to nudge consumers to shop more effectively for care (Lieber 2017). We do find that patients with higher out-of-pocket costs receive lower priced MRI scans.…”

“…Both Lieber (2017) and Brown (2017) suggest that the use of transparency tools would increase if individuals were more directly exposed to the price of health care services. This proposition is supported by theory modeled by Dionne and Eeckhoudt (1984) and Akın and Platt (2014).…”

Intertemporal substitution in health care demand: Evidence from the RAND Health Insurance Experiment

“…First, there are now many more elective and preventive procedures possible than in the past, and many of these are likely straightforward to retime by at least a few months. Second, consumers nowadays are likely more aware of the prices they face, due to the increasing availability of information regarding one's insurance coverage and medical bills (Lieber, 2016). An important question for future research, then, is whether the behavior we have documented here shows up in modern health care plans, as well as whether the excess spending response to hitting the deductible represents high or low value care.…”

What Does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics

“…One argument for HDHP plans is that, given appropriate financial incentives, consumers will price shop, i.e. search for cheaper providers offering a given service without compromising much on quality [see, e.g., Lieber (2015), Whaley (2015) and Bundorf (2012)]. 11 In turn, providers may lower prices to reflect increasing consumer price sensitivity.…”

“…We use semi-arc elasticities, because, for a change starting from (or ending in) a health plan with 0 price for consumers, an arc elasticity yields an estimate that does not reflect the magnitude of the price change. We compute RAND semi-arc elasticities using statistics in Newhouse and the Insurance Experiment Group (1993).9 As discussed in Aron-Dine et al(2012)andEinav et al (2013a), these elasticity measures substantially simplify consumer price responsiveness by aggregating responses to differential non-linear contract incentives into one price measure, an issue that we address directly when studying consumer responses to non-linear contract features here.10 We assess health status in an ex ante predictive sense using the Johns Hopkins ACG software, which integrates medical diagnoses and health spending data to predict medical spending in a sophisticated manner.11 See, e.g., http://www.wsj.com/articles/SB113011622503277210 for an example of the value potential of highdeductible plans.12 In this context, recent work byLieber (2015) andWhaley (2015) finds that most consumers do not actively engage with price shopping platforms similar to the current state-of-the-art but that those who do substitute to cheaper providers for the services they search for. The price shopping tools they study are similar to those implemented at the firm we study: in a mid-t0 survey, we find that approximately 40% of consumers have heard of the price shopping tool, 15% have logged in at least once, and 7% characterize themselves as active users.…”