Working Paper 22917; Improving the Quality of Choice in Health Insurance Markets
By Jason Abaluck and Jonathan Gruber
National Bureau of Economic Research, December 2016
Insurance product choice is a central feature of health insurance markets in the United States, yet there is ongoing concern over whether consumers choose appropriately in such markets – and little evidence on solutions to any choice inconsistencies. This paper addresses these omissions from the literature using novel data and a series of policy interventions across school districts in the state of Oregon. Using data on enrollment and medical claims for school district employees, we first document large choice inconsistencies, with the typical employee foregoing savings of more than $600 in their insurance plan choice. We then consider three types of interventions designed to improve choice quality. We first show that interventions to promote more active choice are unlikely to improve choice quality based on existing patterns of plan switching. We then implement a randomized trial of decision support software to illustrate that it has little impact on plan choices, largely because of consumer avoidance of the recommendations. Finally, we show that restricting the choice set size facing individuals does significantly reduce their foregone saving and total costs. This is not because individuals choose worse with larger choice sets, but rather because larger choice sets feature worse choices on average that are not offset by individual re-optimization.
The full paper can be downloaded for free at this link (69 pages):
By Don McCanne, M.D.
Superficially this seems to be another boring research paper on health insurance markets. But, without intending to do so, it challenges the fundamental concept that we can improve health care financing by offering individuals choices in a marketplace of health plans – a fundamental concept advanced in the Affordable Care Act.
This study was done of plan selection by school district employees throughout the state of Oregon, so the findings are not limited to the ACA exchange plans, nor to a menu of employer-sponsored plans, but they also apply to the choices in the private plan insurance marketplace at large.
This paper confirms the well known fact that individuals do not select plans that would be best for their individual circumstances, “with the typical employee foregoing savings of more than $600 in their insurance plan choice.”
So the authors looked at three policy interventions that might improve employee choices in health plans.
One method would be to promote active choice of plans as opposed to defaulting enrollment to passive inertia, perhaps by forcing re-enrollment. That was done in 2013 and that did not improve quality in choice of plans. In fact, they found that “across all plans, both active and forced switchers do worse than new entrants.” “The major takeaway from these results is that promoting switching is unlikely to have an important effect in reducing choice inconsistencies.”
They then used a randomized trial of decision support software but found that there was consumer avoidance of the recommendations and thus it had little impact on plan choices. They concluded, “information interventions do not appear to significantly reduce foregone savings.”
The third intervention is perhaps the most revealing on why promoting plan choice is a flawed policy intervention. They looked at limiting the number of options available to individuals who are choosing plans. They show that, “restricting the choice set size facing individuals does significantly reduce their foregone saving and total costs. This is not because individuals choose worse with larger choice sets, but rather because larger choice sets feature worse choices on average that are not offset by individual re-optimization.”
When a narrower selection of plans is offered, inferior or inappropriate plans tend to be rejected by the administrators of the panels. In fact, this is what California did when implementing the ACA exchanges. Plan selection improved because the individuals were denied the option of choosing inferior plans.
Choice in health plans is nonsense. Instead of being offered a filtered selection of plain vanilla plans, everyone should be enrolled the plan that is designed to work best for all of us. Of course, that would be an efficient, equitable and affordable single payer national health program – an improved Medicare for all.
From the very beginning CHOICE was a con job. We wanted choices of our health care professionals and institutions, and instead they sold us on choices of private health plans that take away our choices in our actual health care.