Are Expensive Treatments Better? Why Misconceptions About Healthcare Are Costing Us


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Have you ever assumed that a more expensive healthcare option must be better?

Surprisingly, the answer may depend on whether you have health insurance.

A recent Harvard Business School study found that people with high levels of insurance coverage tend to believe that more expensive healthcare options are more effective - whether or not data suggest this is true.

But perhaps even more surprisingly: people who are underinsured or uninsured are likely to assume the exact opposite. They tend to believe that lower-priced healthcare options are more efficient, mainstream or proven, or that the differences in outcomes between high and low-priced options aren’t significant. Again, people seem to do this automatically, whether or not data suggests this is true.

The study’s authors attribute this phenomenon to “motivated inference” - the idea that we are inclined to believe something if we want it to be true, whether or not we have evidence.

“The implications of our findings are significant”, Emily Prinsloo, the study’s lead author told me over video chat. “Our research suggests that if fewer people choose lower-priced [healthcare] options because of misconceptions about quality, it could end up raising the cost of healthcare for everyone, without improving outcomes.”

The study suggests that increasing transparency about outcomes from different healthcare options has the power to help people make more informed decisions, while also reducing healthcare costs. This combination could make quality healthcare, and better outcomes, more accessible to everyone.

As a share of the nation's Gross Domestic Product, health spending accounted for 19.7% in 2020 - up 9.7% from the year prior. (*Note: This is the most recent year that data is widely available; it follows ongoing trends despite the emergence of the COVID-19 pandemic that year.)

Healthcare spending in the U.S. has the highest average cost per person of anywhere in the world, and is growing rapidly. In 2020, U.S. healthcare spending was around $12,530 per person per year - and grew 9.7% over 2019. At the same time, we have worse healthcare outcomes than other countries that spend less per capita.

63% of Americans say they had to cut back on food and basic necessities to pay their medical bills.

The Study

Participants in the study were asked to make a healthcare decision about a minimally invasive knee procedure, choosing from multiple treatment options. They were asked to choose between a lower-priced treatment and a higher-priced treatment, costing $13,000 more. The researchers hypothesized that if cost were not an issue, most people would choose the more expensive option.

In the real world, the actual decisions were a bit more complicated.

Those with low insurance coverage (who had to pay the $13,000 cost difference out of pocket) overwhelmingly chose the more affordable treatment. High-coverage individuals (who only had to pay only a $300 deductible, regardless of the treatment option they chose) overwhelmingly chose the more expensive treatment, despite a lack of data suggesting it yielded better outcomes.

Motivated Inferences

This study found that absent more information, low-coverage individuals tended to rationalize their choice by believing that the difference in the price of the two options wasn’t influenced by quality.

Conversely, high-coverage individuals did the opposite, justifying the higher-cost treatment by imagining that the cost must be driven by quality.

These distortions in judgment are known as motivated inferences - the idea that we rationalize something that we want to believe is true, based on our own circumstances.

The notion that we tend to make decisions based on a small subset of inputs that are largely emotional, and then later rationalize them is one that Nobel Prize-winning economist Daniel Kahneman pioneered.

The implications for doctors, patients, insurance companies and policymakers are potentially significant. Motivated inferences may lead to suboptimal healthcare decisions and can contribute to rising healthcare costs.

Mitigating the Effects of Motivated Inferences

To further understand the implications and potential cures for motivated inferences in healthcare, the authors devised an additional study that provided both test groups with more information about effectiveness of each treatment.

This information showed that the two treatments produced equal outcomes; prompting both low- and high-coverage groups to choose the more affordable option.

This change was most significant among high-coverage individuals, with 33% (vs. 13% previously) now choosing the more affordable treatment after being provided more information about the quality of each.

This suggests that greater transparency about outcomes from different treatment options can help patients make more informed decisions while reducing cost.

What Influences Us?

People may also be influenced by the reputation of a healthcare provider who has more experience with a specific treatment, or recommendations from friends and family who have undergone similar procedures. They may also be influenced by the appearance of the facility and the demeanor of the healthcare providers - leading them to trust providers with better “bedside manner,” while discounting the treatments recommended by an equally-qualified doctor whose personality they like less.

All of these factors can play a role in shaping people's perceptions of healthcare quality, and the decisions they make.

As our population ages and new healthcare options continue to evolve, ensuring that we’re making healthcare decisions based on effectiveness, not misconceptions about price, physician’s personality, or the appearance of a facility, will only become more important.

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