Expensive health plans with comprehensive coverage may give consumers better peace of mind, but they don’t necessarily translate into better outcomes, according to research coauthored by Kannan Srinivasan, H.J. Heinz II Professor of Management, Marketing and Information Systems.
The study, which was published in the INFORMS journal Marketing Science, finds that comprehensive plans with higher annual premiums and lower deductibles and copays can encourage people to seek needlessly expensive treatments with little impact on their health. However, overuse of such treatments drives up costs for the insurer and, consequently, future prices.
The study was coauthored by Nitin Mehta, Ph.D. ’00; Jian Ni, Ph.D. ’10; and former Tepper School of Business faculty member Baohong Sun, now of the Cheung Kong Graduate School of Business. The authors examined data for 3,000 chronically ill patients across a three-year period.
They found that people chose the more generous insurance plans and expensive treatments largely due to lack of information about the effectiveness of various treatments. When faced with uncertainty about the severity of their illness or how they would respond to treatment, patients tended to choose the most expensive insurance options in the mistaken belief that they were getting the best available plan.
Pricing was less of a driver in plan selection. When the option featured a copay reduced by half, fewer people responded than did those who were told that less expensive treatments would offer the same efficacy.
“Beyond the direct value of personalized medicine for improving medical treatments, it is valuable for policymakers to recognize that personalized medicine can substantially reduce costs to the insurer and insured just by guiding appropriate insurance and treatment choices,” said Mehta, now of the University of Toronto.
Srinivasan notes that some chronic diseases do require more expensive treatments, so it’s important to differentiate. He suggests that now that a problem has been identified, the next step would be to identify those interventions that best guide and assist consumers’ choices.