Information and Consumer Choice: The Value of Publicized Health Plan Ratings

We use data on the enrollment decisions of federal annuitants to estimate the influence of publicized
ratings on health plan choice. We focus on the impact of ratings disseminated by the National
Committee for Quality Assurance (NCQA), and use our estimates to calculate the value of the
information. Our approach exploits a novel feature of the data—the availability of nonpublic plan
ratings—to correct for a source of bias that is inherent in studies of consumer responsiveness to
information on product quality: since publicized ratings are correlated with other quality signals
known to consumers (but unobserved by researchers), the estimated influence of ratings is likely to
be overstated. We control for this bias by comparing the estimated impact of publicized ratings to
the estimated impact of ratings that were never disclosed. The results indicate that NCQA's plan
ratings had a meaningful influence on individuals' choices, particularly for individuals choosing a
plan for the first time. Although we estimate that a very small fraction of individual decisions were
materially affected by the information, for those that were affected the implied utility gains are
substantial.