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

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Information and Consumer Choice: The Value of Publicized Health Plan Ratings, with Alan Sorensen at Stanford, Journal of Health Economics, March 2006, 25(2): 248-275.



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.