Behavioral economics lessons for health policy

Congressional Budget Office Director Peter Orszag recently gave a speech to the National Academy of Social Insurance summarizing the lessons of behavioral economics for health care in the U.S. In the speech, Orszag extrapolates from research on price transparency in retail settings as one possibility for controlling costs.

I similarly suspect that making the underlying costs associated with employment-based insurance more transparent may prove to be quite important in containing health care costs. As transparency increases and workers see how much their income is being reduced for employers’ contributions and what those contributions are paying for, there may be a broader change in cost-consciousness that shifts demand.

Health policymakers will want to be careful when trying to transfer these lessons from things like food and drink items to medical procedures. Policymakers want people to purchase preventative health care procedures that may save money years down the road. If making prices more salient will simply reduce health care consumption across the board, that may not lead cost savings five years down the road. The key would be to increase long-term cost savings information about specific procedures for specific populations.

Orszag thinks shifting, or taking advantage of, social norms shows promise, too.

Like other people, doctors tend to follow professional norms of behavior…The problem is that the professional norms in different parts of the nation do not always follow evidence-based standards of best practice. How can norms be shifted? One mechanism involves greater use of evidence-based medicine. Anesthesiology provides one example of a great success story in putting standards into practice. In the mid-1980s, the American Society of Anesthesiologists promulgated standards of optimal practice (both in procedures and equipment) after analyzing the most common sources of errors. Providers had an incentive to follow the standards because deviations from them made the imposition of malpractice liability more likely. After the standards were adopted, mortality rates fell to about 5 per million encounters, as compared with averages of over 100 per million during earlier periods. This experience thus provides a case study showing that aggressively promulgated standards backed by some incentives can alter a long-standing and suboptimal status quo.

He cautions though that merely providing information to physicians leads to an “exceedingly modest behavioral response.” Social norms may need to be tied to financial incentive structures then. Perhaps medical checklists can be tied to insurance reimbursements?

Finally, he addresses the subject of default rules and proposes two controversial ones. The first is for cost-effective but underutilized preventative procedures, in which people would be “signed up for (and charged for) appointments to receive those types of care by default, unless they changed or canceled them.” The second is for default doctor recommendations, implemented in order to reduce the availability bias in which doctors draw on recent information or cases when offering a recommendation.

In one computer-based study, experienced vascular surgeons monitored an expanding balloon intended to simulate an asymptomatic abdominal aortic aneurysm; some were randomly assigned a bad outcome; others, a good one. They were then presented with the same statistical information about future risk. Those who had experienced the bad outcome tended to choose to operate more quickly than those who had experienced the good outcome…Designing mechanisms in which the default choice for providers is based on underlying statistical evidence, but with an option for the provider to override that
default, may help to overcome these types of biases.

Hat tip: Amol Agrawal at Mostly Economics.

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