Auto-Renewing Your Health Plan May Be Bad for You, and for Competition
By Austin Frakt
The New York Times, September 29, 2014
Overwhelmed with increasing choice in the new exchanges, returning consumers may not relish the idea of selecting a new plan. A feature built into the exchanges practically invites them not to do so: auto-renewal. Consumers insured by an exchange plan this year who do not actively choose a new one for next year will be automatically re-enrolled in their current plan or automatically enrolled in a similar one if their plan is discontinued. This auto-renewal is meant to help increase and maintain the size of the insured population and to promote continuous coverage. But if people rely on auto-renewal without evaluating all available options, some may end up in plans that aren’t ideal for them.
Next year, the premiums of the currently cheapest silver-rated plans are going up by an average of 8.4 percent. Because of that, many of those plans will no longer be the cheapest. The customers who switch to the silver plans that are the cheapest in 2015 will see their premiums rise by only 1 percent on average.
Auto-renewal also offers insurers a way to retain customers without vigorously competing for them, counting on the fact that some consumers will stick with their plans even when, rationally, they should not.
Here, basic economic theory is in conflict with the finding from behavioral economics that when choices become too numerous and complex, consumers resort to heuristics (or shortcuts), leading to suboptimal decisions. For instance, when we can’t fully evaluate all options, we tend to default to familiar brands. And, because it takes time and effort to re-evaluate options, we tend to stick with our initial choice of brand when making a new purchase.
If we want more competition, we need to induce fewer people to default to auto-renewal.
Auto-renewal exists for a reason, but if consumers rely on it too much, the results will include higher premiums and greater market power for insurers.
Comment:
By Don McCanne, MD
Under a well designed single payer national health program there would be no need to choose networks since the entire health care delivery system is covered, and there would be no need to shop deductibles since they would be eliminated.
The problem of auto-renewal would disappear since enrollment would be for life.