CWRU researchers: Small businesses overpay for health insurance by 29%

New research from Case Western Reserve University and two other schools has concluded that problems associated with comparison shopping for health insurance result in small businesses overpaying insurance premiums by an estimated 29 percent.

The paper suggests that a major component of last year’s controversial federal health overhaul, insurance exchanges, could help consumers extract better value from their health plans by making comparison shopping easier, according to a statement from Case. Set to begin in 2014, the exchanges are health insurance marketplaces that will serve individuals buying insurance on their own and small businesses with up to 100 employees.

The overpayment problem cited in the research paper can be attributed to a concept known as “search friction,” which occurs when consumers can’t easily compare all the options available to them in the marketplace.

“What our paper shows is that this ‘shopping problem’ has important implications for how market competition plays out,” said co-author Mark Votruba, an associate professor of economics at Case. “If consumers have a hard time evaluating value, competition becomes less about value and more about marketing.”

The research paper, “Unhealthy Insurance Markets: Search Frictions and the Cost and Quality of Health Insurance,” was published in the August issue of American Economic Review. Researchers from Boston University and Carnegie Mellon also worked on the paper.