Policy Research

Comparison Friction: Experimental Evidence From Medicare Drug Plans

Jeffrey R. Kling, Sendhil Mullainathan, Eldar Shafir, Lee C. Vermeulan , Marian V. Wrobe

Summary

Consumers of health care services and medicine are best able to save money when information about their alternatives is readily available to them. However, tracking down the information, even when it is readily available, can be overwhelming. The researchers mailed a randomized sample of Medicare D recipients a letter detailing personalized plan and cost information. All of the information in the letter was widely advertised and readily available for free. But, the simple additional step of sending the letter resulted in an 11% increase in plan switching for the sample group as opposed to the control group. This in turn led to an average decline in cost of about 100 dollars per year for the recipients of the letter.

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Policy Implications

The experiment suggests that a minor intervention can significantly reduce “comparison friction” or the difficulty a consumer faces when comparing choices. As more and more policy relies on consumer choice for government benefits, care should be taken to make the information needed for comparison making as accessible as possible to the consumer. When possible, interventions should be taken to deliver the information on options to the consumer rather than waiting for the consumer to seek it out.