Medical insurance and free choice of physician shape patient overtreatment: A laboratory experiment

Abstract

In a laboratory experiment designed to capture key aspects of the interaction between physicians and patients, we study the effects of medical insurance and competition in the guise of free choice of physician, including observability of physicians' market shares. Medical treatment is an example of a credence good: only the physician knows the appropriate treatment, the patient does not. Even after a consultation, the patient is not sure whether he received the right treatment or whether he was perhaps overtreated. We find that with insurance, moral hazard looms on both sides of the market: patients consult more often and physicians overtreat more often than in the baseline condition. Competition decreases overtreatment compared to the baseline and patients therefore consult more often. When the two institutions are combined, competition is found to partially offset the adverse effects of insurance: most patients seek treatment, but overtreatment is moderated.

Second opinions in markets for expert services: Experimental evidence

“…Green (2014) analyzes different payment structures for physicians in a real effort experiment, finding that payment systems with retrospective reimbursements (i.e., fee-for-service, and fee-for-service with pay-for-performance) resulted in the lowest overall quality of services for patients, whereas physicians provided a higher overall quality of service under prospective structures such as salary and capitation. Huck et al (2014) investigate how patients' insurance coverage and free choice of physicians influence physician and patient behavior in an experimental credence goods market. They find that insurance increases both overtreatment on the expert side and the number of expert visits on the customer side.…”

Credence Goods Markets and the Informational Value of New Media: A Natural Field Experiment

“…Markets for credence goods (Darby and Karni, 1973;Dulleck and Kerschbamer, 2006;Huck et al, 2016a) are ubiquitous in daily life. They include, among others, markets for health care, repair and legal services, as well as financial advice and fund management, with all of these markets having a huge size in the overall economy.…”

Why prevent when it does not pay? Prevention when health services are credence goods

“…The recommendation to expand insurance coverage often rests upon the presumption that it can help to reduce inequalities in health‐care utilization (Devaux, ). However, insurance has been shown to potentially increase the problem of overtreatment when health services are credence goods (Huck, Lünser, Spitzer, & Tyran, ). In our framework, insurance would therefore potentially imply that both low‐SES and high‐SES patients face the problem of overtreatment.…”