The Shopping Problem and the Cost and Quality of Health Insurance

By | September 12, 2011

In the August 2011 issue of the American Economic Review, Center faculty members Mark Votruba, Randy Cebul, and Jim Rebitzer (formerly Chair of Economics at CWRUÕs Weatherhead School of Management, now at Boston University), along with Professor Lowell Taylor at Carnegie Mellon, identified Òsearch frictionsÓ (aka the Òshopping problemÓ) in obtaining health insurance as both costly and a source of potentially poorer quality health care Ð especially for small businesses. The authors document the relevance of this problem to high insurance turnover rates and discuss how this can affect inadequate insurer investments in preventive services and chronic illness care. Whether federally mandated health insurance exchanges can help fix these problems is an open question. According to Rebitzer, ÒIn theory, they should, as long as the exchanges are designed so that shoppers can easily evaluate the value they should expect for the prices of different plans. We will know that the exchanges are successful if turnover rates and marketing expenses decrease.Ó The work already is being discussed in policy circles (article 1, article 2, article 3, article 4). (posted 9/2011)Mark Votruba, Randy Cebul, Jim Rebitzer, American Economic Review, article 1, article 2, article 3, article 4