Metrohealth-Case Western Reserve Faculty Win Research

Newswise — When small companies think about why they spend so much on health insurance coverage for employees, their thoughts might include pre-existing conditions and bad lifestyle choices. But a recent study by The Center for Health Care Research and Policy identifies another cause of high premiums – and the results are receiving international acclaim.

Researchers at The Center for Health Care Research and Policy, a joint program by MetroHealth and Case Western Reserve School of Medicine, recently were bestowed the Arrow Award for the best paper in health economics in 2011. The International Health Economics Association described their research paper, “Unhealthy Insurance Markets: Search Frictions and the Cost and Quality of Health Insurance,” as “important, innovative and policy-relevant.”

Published in the prestigious American Economic Review, the paper was co-authored by Randall Cebul, MD, Director of the Center; Mark Votruba, PhD, Case Western Reserve associate professor of economics and medicine; James Rebitzer, PhD, past economics chair at Case Western Reserve; and Lowell Taylor, PhD, professor at Carnegie Mellon University.

The paper concluded that small businesses overpay for health insurance because they are unable to compare the value of insurance policies. Since small companies have difficulty comparison shopping for health insurance, the marketplace doesn’t dictate pricing and insurers can set prices at any rate they choose.

The name for this problem is “search frictions” and this study marks the first time this theory has been applied to the health insurance market. The authors estimate that frictions raise premiums for small employers by an average of 27 percent and increase turnover by about 64 percent for the average health insurance policy.

“You’re going to have a hard time finding your best health plan, so you’re always searching for a better option,” said Dr. Cebul, who is also a professor of medicine and epidemiology and biostastics at Case Western Reserve. “The result is that many small companies switch health insurance carriers frequently, which also drives up their costs.”

“High turnover reduces the incentive for health insurers to invest in preventive services and other chronic disease management programs because these types of programs take longer to produce a return on their investment,” Dr. Cebul added.

Another hindrance to comparison shopping is the cost of marketing insurance plans. Once marketing costs are added to the plan, shoppers can count on even higher prices that aren’t related to the product alone. So there’s no way to tell what a policy is actually worth.

“If consumers have difficulty judging a product’s value, competition becomes more about marketing than about creating high-value products,” Dr. Votruba said.

But help is on the way.

Under the federal health reform law, states must now create individual health insurance exchanges, which are being designed to help individuals and small businesses comparison shop and choose health insurance plans for employees. If individual states decline to establish these exchanges, the federal government will establish one for them.

The MetroHealth SystemThe MetroHealth System is a comprehensive academic healthcare system which has served as the safety net public hospital for Northeast Ohio for 175 years. MetroHealth has a nationally renowned Level I trauma and burn center and an acclaimed critical-care transport program – Metro Life Flight. MetroHealth’s network of community health centers incorporates a patient-centered medical home team care approach to optimize patient outcomes through chronic disease management. MetroHealth is in the top 4% of hospitals in the U.S. to achieve Magnet® recognition for a second time. Magnet® is the nation’s highest honor for nursing excellence. Founded in 1837, MetroHealth has been a major affiliate of Case Western Reserve University since 1914 and all MetroHealth active physician staff hold faculty appointments at Case Western Reserve University School of Medicine. Each year, MetroHealth provides nearly one million inpatient and outpatient visits – with overall revenue of $700 million. For more information on The MetroHealth System, visit www.MetroHealth.org.

About Case Western Reserve University School of Medicine Founded in 1843, Case Western Reserve University School of Medicine is the largest medical research institution in Ohio and is among the nation’s top medical schools for research funding from the National Institutes of Health. The School of Medicine is recognized throughout the international medical community for outstanding achievements in teaching. The School’s innovative and pioneering Western Reserve2 curriculum interweaves four themes--research and scholarship, clinical mastery, leadership, and civic professionalism--to prepare students for the practice of evidence-based medicine in the rapidly changing health care environment of the 21st century. Nine Nobel Laureates have been affiliated with the school of medicine.

Annually, the School of Medicine trains more than 800 MD and MD/PhD students and ranks in the top 25 among U.S. research-oriented medical schools as designated by U.S. News & World Report “Guide to Graduate Education.”

The School of Medicine’s primary affiliate is University Hospitals Case Medical Center and is additionally affiliated with MetroHealth Medical Center, the Louis Stokes Cleveland Department of Veterans Affairs Medical Center, and the Cleveland Clinic, with which it established the Cleveland Clinic Lerner College of Medicine of Case Western Reserve University in 2002. http://casemed.case.edu

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