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

Michael Chernew, Gautam Gowrisankaran, Dennis P. Scanlon

NBER Working Paper No. 8589
Issued in November 2001, Revised in September 2006
NBER Program(s):Health Care Program, Productivity, Innovation, and Entrepreneurship Program

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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Document Object Identifier (DOI): 10.3386/w8589

Published: 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.

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