Health Care Demand Under Simple Prices: Evidence From Tiered Hospital Networks

This paper shows that consumers price-shop for complex health care when they can easily assess out-of-pocket prices. Health care cost containment efforts increasingly incentivize price-shopping, despite a dearth of evidence that this steers consumers toward lower-priced care for major medical services. I show that consumers price-shop in the highly simplified price information environment of health insurance plans with tiered hospital networks. These consumers observe a single predictable, well-defined price that applies to a broad range of services within each of at most three tiers of hospitals. The savings from price-shopping are large enough to both compensate for consumer welfare losses and raise insurer profits.