Informing Consumers about Health Care Costs

Many proposals for containing health care costs emphasize the importance of strengthening consumers' financial incentives to shop for low-cost providers or choose efficient health plans. The success of this strategy hinges on consumers' ability to make informed choices. Programs that provide consumers with information that will help them compare providers and health plans may enhance price competition, but will cost something as well. To compare the costs and benefits, it is necessary to consider the extent to which increased information is likely to alter consumers' behavior. To do this, the authors review existing theoretical and empirical research and describe the results of an informal survey of public and private initiatives that are under way to inform consumers about health care costs. They examine the potential effect of hospital price information on patients' choices under strategies of increased patient cost-sharing. They also examine the efforts of private group purchasers to acquire and use information about hospital prices, and analyze the potential role of information in encouraging beneficiaries to select efficient health plans. Finally, they discuss implications for the Medicare program and propose an agenda for future research.