man discussing treatment with a doctor

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February 5, 2013

Are You a 'Wise' Health Care Consumer?

by Ramya Chari and Arthur L. Kellermann

If you've spent more time researching which flat screen TV to purchase than which doctor or health plan to choose, you're not alone, according to the American Institute for Preventive Medicine (AIPA). Despite the fact that annual health care costs have nearly doubled in the past decade for the average U.S. family, consumers tend to shy away from negotiating with providers or asking if a costly test is truly necessary.

Responding to this trend, AIPA has named February Wise Health Care Consumer Month—a time to encourage consumers to take a more active and informed role in their health care decisions. According to AIPA, a “wise” health care consumer analyzes and evaluates sources of health information, then chooses their health care plans and providers thoughtfully.

Of course, this is no easy task. Unlike shopping for that flat screen, health care decisions don't transpire in a normal market place. In the health care market, the seller (in this case, the health care provider) has much more knowledge of the product being sold (treatment) than the buyer (the patient).

Economists call this phenomenon “information asymmetry.” When it happens, sellers have a huge advantage over buyers in transactions. In health care, professionalism tends to buffer such behavior. But fee-for-service reimbursement provides a powerful incentive for providers to do more in order to bill more. Moreover, in many instances, patients don't know the test or treatment's cost. If they have generous health insurance, they might not even care.

One possible solution for the lack of price transparency is cost profiling, which assigns a single number or symbol that places a physician on a relative spectrum of spending. Insurers already use such profiles to identify higher- and lower-cost providers.

Unfortunately, cost profiles may not yet be reliable enough for providers to endorse and consumers to trust. There is even some evidence that consumers wrongly assume that more expensive providers are better than less expensive ones, despite inconsistent evidence that there is any link between health care cost and quality.

Public reporting of health care quality data could help, too. However, it is difficult to generate reliable reports, and when they are produced consumers often complain that they are excessively complex and not particularly relevant to their concerns.

Recently, a team of RAND researchers proposed several ways to make public reports on quality—and cost—more meaningful to consumers:

  • Present cost and quality information together.
    Many consumers mistakenly assume that higher cost necessarily equals higher quality. Reports that rank providers by cost, within quality tiers can help.

  • Target the choices consumers make most often.
    Consumers rarely “shop” for care during a serious illness or a major emergency. They are more likely to consider cost and quality data when selecting a primary care physician, a maternity hospital, or a specialist to perform an elective procedure.

  • Report total personal (i.e., out-of-pocket) costs, not just the immediate co-payment.
    Instead of focusing only on the patient's cost for the initial visit consumers should be able to determine what a total episode of care will cost including follow-up visits and supplemental fees.

  • Strengthen financial incentives.
    One way to encourage consumers to utilize reliable cost and quality reports is to require higher co-payments for visits to high-priced providers or offer consumers the option of signing up for a less-expensive health plan that excludes high-priced providers altogether.

  • Make sure consumers can read and understand the information.
    More than half of currently uninsured adults—many of whom will become eligible for coverage under the Affordable Care Act (ACA)—have difficulty finding, reading, and understanding basic health information. The ACA requires health plans to convey information in “plain language” that “the intended audience, including individuals with limited English proficiency, can readily understand and use because [it] is concise, well-organized, and follows other best practices.”

The number of information sources for consumers is growing. Medicare and private health plans, for example, are working to improve their methodology for rating healthcare providers and organizations. And Consumer Reports, an independent product review organization known for its objective ratings of cars, electronics, and other consumer goods, has begun to tap various streams of data to rate a growing number of health plans, doctors, hospitals, and drugs. As time goes on, it should become easier for consumers to find objective and understandable information.

To be wise purchasers of health care services, consumers need access to accurate and understandable information about health plans and providers. Armed with this information, consumers should be able to participate as active partners in care, and safeguard their financial well-being.


Ramya Chari is an associate policy researcher and Arthur Kellermann holds the Paul O'Neill–Alcoa Chair in policy analysis at the nonprofit, nonpartisan RAND Corporation.