The Effect of Quality Information on Consumer Choice of Health Plans: Evidence from the Buyers Health Care Action Group Jean M. Abraham, Roger Feldman, Caroline Carlin, and Jon Christianson June 6, 2004 Supported by the Robert Wood Johnson Foundation’s Initiative on Changes in Health Care Financing and Organization

Importance of Quality Information If employees have good information on health plan quality, they will pick high- quality plans and avoid low-quality plans Plans will compete to attract enrollees by improving quality Result is double-barreled improvement Or so the theory of managed competition says

Previous Studies Typical study analyzes a “natural experiment” where an employer collects and distributes information on health plan quality for the first time Pre- and post-information behavior is compared, e.g., Do employees switch to plans with higher reported quality scores? Results suggest small effect of quality information in getting employees to avoid low-quality plans

Our Contribution We also analyze a natural experiment –Quality information program sponsored by an employer coalition in Minneapolis So what’s our contribution? –We study the value of information on a different margin: How do employees use quality information in a mature program? –Information is available, but employees must be aware of the information and then must decide to use it –We use an economic model based on search theory to explain information awareness and use

Conceptual Model: Basics Our model is based on Hirshleifer and Riley (1979) Individual chooses one of several health plans subject to imperfect information about health plan quality A quality shock such as a bad experience with her current health plan leads the employee to search for quality information Information changes expected quality Based on the new information, the employee may decide to switch plans

Buyers Health Care Action Group (BHCAG) Health insurance purchasing and reform coalition in Minneapolis –24 of these employers offered “Choice Plus” in 2002 –Focus on 16 employers where Choice Plus is the sole or dominant health plan Choice Plus –Direct contracting model with 17 care systems –Integrated teams of primary care providers, affiliated specialists and hospitals –Primary care physicians can affiliate with only one care system –Systems are placed in three cost tiers based on risk- adjusted bids

Quality Program #1 Care system quality ratings –16,000 enrollees are surveyed every other year by an independent organization –Each care system is rated on different dimensions of quality for adults and children –Experiences with clinics and medical care in prior year how people rated their clinic how they rated their doctor or nurse how well doctors communicate Results are summarized in booklet that some employers distribute to employees at open enrollment

Quality Program #2 “Excellence in Quality Award” –Good consumer survey scores –Delivery of preventive care services to a large majority of their patients –Proof of quality improvement and outcomes of care in at least one important way –Demonstration of care system’s commitment to patient safety Financial prizes –Gold ($100,000); Silver ($50,000); Special Recognition Permission to use in marketing for 2 years

Data Primary data were collected in Spring 2002 –Employee survey stratified by employer –Over-sampled switchers (25% vs. 8% pop.) –Focus on single employees with no dependents –N = 651 Matched to data on care systems and employer communication strategies

Dependent Variables Two quality awareness questions: –“During the open enrollment period…do you recall seeing the “Quality Awards and Consumer Survey Results” that rated all the care systems on several aspects of quality and consumer satisfaction?” (33%) –During the open enrollment period…do you recall seeing or hearing about the “Excellence in Quality Awards” that care systems can earn…? (23%) –“Yes” to either question was counted as quality information awareness (Abraham et al, 2004) Switched care systems in 2002 –Self-reported and confirmed by enrollment file

Independent Variables Personal Attributes: Demographics such as sex, age, education, job tenure, Twin Cities tenure, and chronic disease Overall satisfaction with 2001 care system Have personal doctor/nurse Lost personal doctor/nurse Care system Attributes: Tax-adjusted premium difference vs. best alternative Quality award comparison Quality rating comparison Employer Communication: Performance results booklet distributed to all employees Performance results booklet distributed on request

Model Information Awareness = f (Personal Attributes, Employer Communication Strategies) + e 1 Switch = f (Information Awareness, Personal Attributes, Care System Attributes) + e 2 Model is recursive but the error terms may be correlated (1)Two-Stage least squares on linear probability removes the correlation (2)Bi-variate probit explicitly models it (Greene, 1998) Identification: Switching equation excludes employer communication strategies

Information Awareness - Key ResultsCoefficient (SE) Marginal Effect Overall satisfaction with 2001 care system.066* (.039).025 Male-.282** (.132) Education level.152** (.075).058 Ln(Job tenure).124* (.071).051 Chronic disease.014 (.135).005 Booklets distributed to all.255* (.149).099 Booklets distributed on request.481*** (.152).187 *p<.10, **p<.05, ***p<.01 Note: all other variables in model are statistically insignificant Bi-variate Probit Results

Switch – Key ResultsCoefficient (SE) Marginal Effect Information awareness.278 (.684).029 Have personal doctor/nurse-.478** (.196) Lost personal doctor/nurse.628*** (.206).090 Tax-adjusted premium dif. in dif..073*** (.014).007 Quality award comparison.145 (.127).014 Quality rating comparison.141 (.192).014 Overall satisfaction with 2001 care system (.047) Chronic disease-.250 (.164) Constant-1.312*** (.375) …

Implications - 1 Not the right information? –Focus groups suggest employees want information about their doctor and the best doctors and hospitals for their illness –Information on care systems may be too general (although more specific than health plan information) Opposing view: overall satisfaction with 2001 care system correlates highly with things that consumers care about

Implications - 2 Employer communication methods may be ineffective –Employer communication increases the proportion of employees who are aware of quality information, but employees don’t use the information –Employers may need to be more assertive in presenting information, especially about poor- quality plans

Implications - 3 Puzzling result: more-satisfied enrollees are more likely to be aware of quality information –Dissatisfied enrollees may reduce their estimates of quality in all care systems, thus reducing the expected benefits of search –Need carefully-designed surveys based on search theory

Implications - 4 Our results don’t necessarily disagree with those of earlier studies –We examined a mature information program; other studies looked at first-time behavior –First-time dissemination of information may help employees “sort” into the best plan –Then they are relatively insensitive to new information