Do Report Cards Tell Consumers Anything They Don't Already Know? The Case of Medicare HMOs

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The use of government-mandated report cards to diminish uncertainty about the quality of products and services is widespread. However, report cards will have little effect if they simply confirm consumers' prior beliefs. Moreover, documented "responses" to report cards may reflect learning about quality that would have occurred in their absence ("market-based learning"). Using panel data on Medicare HMO market shares between 1994 and 2002, we examine the relationship between enrollment and quality before and after report cards were mailed to 40 million Medicare beneficiaries in 1999 and 2000. We find evidence that consumers learn from both public report cards and market-based sources, with the latter having a larger impact during our study period. Consumers are especially sensitive to both sources of information when the variance in HMO quality is greater. The effect of report cards is driven by beneficiaries' responses to consumer satisfaction scores; other reported quality measures such as the mammography rate did not affect enrollment decisions.

Published: Dafny, Leemore and David Dranove. “Do Report Cards Tell Consumers Anything They Don’t Already Know? The Case of Medicare HMOs.” The RAND Journal of Economics 39, 3 (Autumn 2008): 790-821.

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This paper was revised on October 10, 2007

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