How Does the Benefits-Value-Advisor Program Steer Beneficiary Choices?

Abstract

Problem Definition: Large price variation and a mismatch between price and quality are prevalent even for non-urgent and routine medical procedures such as MRI and CT Scan, which has led some insurers to introduce the Benefits-Value-Adviser (BVA) program to steer beneficiaries to low-cost providers. Questions that this paper investigates are as follows. By what amount and by which mechanisms do commonly employed strategies steer beneficiaries' choices?

Methodology/results: We explored the effect of three strategies currently used by the BVA program, namely, recommendation, monetary reward and persuasion by testimonial. We used a full factorial between-subjects experimental design. Five hundred subjects were recruited through Amazon's Mechanical Turk platform. We found that recommendation was effective in changing beneficiaries' choices to the lowest-cost provider, but monetary reward and testimonials were not. Ceteris paribus, subjects receiving recommendations had on average 3.79 times the odds of choosing the lowest-cost provider compared to subjects without recommendations. More importantly, recommendation was effective only when beneficiaries trust their insurance company or at least show a neutral attitude towards it. We also found that the BVA program was more likely to be effective when beneficiaries had a good understanding of the relationship between their out-of-pocket costs and insurer's costs, and for elderly subjects.

Managerial implications: Our findings suggest that firstly, insurers need to focus more on leveraging the positive effect of recommendation. Secondly, building trust within the beneficiary population is important for the success of the BVA program. Thirdly, insurers should pay attention to educational programs to promote beneficiaries' familiarity with healthcare insurance costs and improve their understanding of the lack of a direct link between providers' prices and quality for many high-priced providers. Finally, elderly people may be targeted in the marketing or advertising of such programs.

Keywords: Benefits-value-adviser program, provider payment innovation, beneficiary behavior