Information and Consumer Choice: The Value of Publicized Health Plan Ratings

Abstract

We use data on the enrollment decisions of federal annuitants to estimate the influence of publicizedratings on health plan choice. We focus on the impact of ratings disseminated by the NationalCommittee for Quality Assurance (NCQA), and use our estimates to calculate the value of theinformation. Our approach exploits a novel feature of the data—the availability of nonpublic planratings—to correct for a source of bias that is inherent in studies of consumer responsiveness toinformation on product quality: since publicized ratings are correlated with other quality signalsknown to consumers (but unobserved by researchers), the estimated influence of ratings is likely tobe overstated. We control for this bias by comparing the estimated impact of publicized ratings tothe estimated impact of ratings that were never disclosed. The results indicate that NCQA's planratings had a meaningful influence on individuals' choices, particularly for individuals choosing aplan for the first time. Although we estimate that a very small fraction of individual decisions werematerially affected by the information, for those that were affected the implied utility gains aresubstantial.