News & Commentary

Transparency Depends On Consumers’ Rational Thinking

Changing the way doctors are paid could save over $1 trillion in health care costs, but physicians can’t do it on their own. One of the ways health insurers can help is by joining together to facilitate payment reform, says a study by UnitedHealth Group.

The Affordable Care Act promises a greater emphasis on price transparency in the hope that knowledge of what services cost will encourage better decisions on the part of consumers.

“This reasoning, however, relies on the tenuous assumption that consumers incorporate price information rationally,” according to findings in the Journal of Consumer Research.

In the research article, which involves an analysis of a set of studies, two patient groups interpret what the price of flu shots means for the risk of getting the flu.

One group is told that the shot is $25; the other, $125. Everybody is told that insurance covers the shot, but the consumers told that it costs $25 think that the risk is greater and that they should get it.

“Specifically, consumers believe that lower medication prices signal greater accessibility to anyone in need, and such accessibility thus makes them feel that their own self-risk is elevated, increasing consumption,” says “Price Inferences for Sacred Versus Secular Goods: Changing the Price of Medicine Influences Perceived Health Risk,” which is scheduled for the April 2013 issue of the journal.

Consumers consider most health care services to hold “sacred” value, “one that a moral community implicitly or explicitly treats as possessing infinite or transcendental significance.”

Such goods do not function in the marketplace the way that other goods do. “We differentiate sacred and secular goods by their lifesaving status — a cancer medication that could prevent death would be considered sacred, while a cosmetic medication that could prevent wrinkles would be considered secular.”

One might intuitively conclude that when people are given a choice between two “sacred” goods, they would consider the higher-priced medication to be more needed, but that isn’t the case; consumers actually believe that low prices signal high need.

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