Mark Beaumont Assignment #3 Information Asymmetry Due 10/21/19

Mark Beaumont MD

January 12, 2022

 

 

 

In the U.S health insurance market, consumers of healthcare, the buyers, have an information advantage over insurance companies like Blue Cross/Blue Shield (BCBS), the payers. Consumers know more information about their own health conditions than the insurance providers. With this additional insight, buyers have an incentive to conceal health problems, in an attempt, to get a lower insurance premium.2 In other words, if BCBS knew that a person had a history of heart disease or cancer, costly medical conditions, they could charge them a higher rate. Insurers, in turn, screen customers to eliminate high medical users to avoid adverse selection, establish coverage limits and increase premiums to cover perceived financial risks. Higher premiums distort the health insurance market for healthy consumers and many forego coverage.4 Asymmetric information is a risk factor for potentially causing the failure of any economic market as it can erode trust and contribute to adverse selection and/or moral hazard.1,2

The Affordable Care Act (ACA), in part, addresses information asymmetry by creating a more fair and comprehensive health market where consumers can choose appropriate plans, regardless of risk, which drives competition, leads to higher quality care and lower prices. An indispensable condition for success with the ACA, however, is that consumers have transparency into the cost and quality of each health plan.2 With the influx of patients receiving insurance, it is vital that physicians and insurers share information about all services with their patients. The more patients know, the more empowered they are to proactively prevent or manage medical conditions, thus reducing the overall cost of health care over time.4,7

The U.S healthcare sector is one of the most expensive economic industries. It is an accurate example of a system composed of interrelated parties’ with varied incentives and conflicting interests. Healthcare accounted for 17.8% of the U.S. GDP in 2018 or about $3.5 T.10 To fight adverse selection, insurance companies, like BCBS, have also partnered with data brokers to obtain details about man Americans. They are tracking your race, education, TV habits, marital status, net worth and social media posts to predict how much your health care could potentially cost them. Their goal is to see how people’s personal interests and lifestyle habits might relate to their health care costs and use consumer marketing information to supplement its claims and clinical information. Patient advocates warn that using unverified personal data to make medical decisions can lead insurers to improperly price plans.8,11 

MA residents are required to have health insurance and there is also an active political debate regarding universal health care for all Americans. As a way to expand the use of information sharing, the healthcare system can prioritize the interests of all parties. A two-sided network effect can occur as the value of insurance increases with the number of those insured. Three dimensions of the network effects to be prioritized are administrative automation, network knowledge and resources orchestration.12 As health insurance companies adapt to reform data systems management and operations in a cloud-based world, they must find ways to build customer trust and signal their alignment with patients.4

References

  1. Shafrin, J. Why shopping for health insurance is hard; Healthcare Economist; November 20, 2017
  2. https://www.healthcare-economist.com/2017/11/20/why-shopping-for-health-insurance-is-hard/
  3. Two-Sided Information Asymmetry in the Healthcare Industry; Major, I. Int Adv Econ Res (2019) 25: 177. 
  4. https://doi.org/10.1007/s11294-019-09732-9
  5. Ausick, P. US Wastes $760 to $935 Billion Annually on Health Care; October 8, 2019
  6. https://247wallst.com/healthcare-economy/2019/10/08/us-wastes-760-to-935-billion-annually-on-health-care
  7. Johnson, D. When Healthcare is a “Lemon”: Asymmetric Information and Market Failure; 4sightHealth; March 3, 2015.
  8. https://www.4sighthealth.com/when-healthcare-is-a-lemon-asymmetric-information-and-market-failure/
  9. Wikipedia-Information asymmetry; https://en.wikipedia.org/wiki/Information_asymmetry
  10. Shmanske, S. Information Asymmetries in Health Services; The Independent Review; Volume 1, Number 2 1996. 
  11. https://www.independent.org/pdf/tir/tir_01_2_shmanske.pdf
  12. Miller, M. Reducing “Information Asymmetry” in Health Care; Stakeholder Health-Transforming Health Through Community Partnership. 
  13. https://stakeholderhealth.org/reducing-information-asymmetry-in-health-care/
  14. Solving Information Asymmetry: How Today’s Companies Are Empowering Consumers and Creating More Efficient Markets; Huffington Post; 09/09/2013.
  15. https://www.huffpost.com/entry/solving-information-asymm_b_3870302
  16. Investopedia: Lemons Problems
  17. Data.gov
  18. Kaiser Health News July 17, 2018. Health Insurers are vacuuming up consumer data that could be used to raise rates. 
  19. https://www.healthleadersmedia.com/finance/health-insurers-are-vacuuming-consumer-data-could-be-used-raise-rates
  20. How to Harness the Power of Network Effects. Forbes. January 2, 2018. https://www.forbes.com/sites/forbescoachescouncil/2018/01/02/how-to-harness-the-power-of-network-effects/#7275d0a162e8