Consumer Responsiveness to Simple Health Care Prices: Evidence From Tiered Hospital Networks
This paper shows that consumers price-shop for health care when they can easily assess out-of-pocket prices. Health care cost containment efforts increasingly incentivize price-shopping, despite recent evidence that this does not steer consumers toward lower-priced care. I show that consumers price-shop in the highly simplified price information environment of health insurance plans with tiered hospital networks. These consumers observe a single predictable, well-defined price that applies to a broad range of services within each of at most three tiers of hospitals. The expected partial-equilibrium savings from tiered networks are on the order of 8–15% of baseline spending after three years of operation. The savings are large enough to both compensate for consumer welfare losses and raise insurer profits.
Prager, Elena. 2017. Consumer Responsiveness to Simple Health Care Prices: Evidence From Tiered Hospital Networks.