Austin Frakt at the Incidental Economist is highlighting some really cool research on the problem of too much choice in insurance offerings:
Maybe more choices isn’t better? What if helping consumers navigate them is merely second best to reducing the number of choices in the first place?
It sounds a bit crazy, because a premise of an ideal market is that there are so many choices, everybody can find a product to perfectly match his or her preferences. No market achieves that ideal, but clearly fewer choices moves in the wrong directly, theoretically.
Theory is useless if it is wrong. It must be tested.
In a study published as an NBER working paper, Jason Abaluck, Jonathan Gruber did so….
On average, employees spent about $1,000 more on coverage per year than they could have. The number of plan choices varied across district and time. Through 2011, the vast majority of employees had four choices. After 2011, some had as many as ten. Choices ranged in plan style — closed panel HMOs (e.g., Kaiser) and broader network PPOs — as did employer contributions to premiums and cost sharing, all of which was controlled for in analysis…
Finally, the authors examined forgone savings as a function of choice sets. Foregone savings are almost twice as large when employees face a choice of eight plans versus only four plans. Now, this result could occur if what’s going on is that as additional choices include better ones, but that enrollees don’t pick better ones. That is, they could do better with more choices, but they don’t know how to make the right ones….
Insurance is confusing. When I worked at UPMC, I was given three choices ( narrow high deductible, narrow low deductible, broad low deductible). Now that I work at Duke, I have four choices: narrow high deductible, narrow low deductible, broad low deductible, national low deductible. I can figure those choices out. The HR department has spent a lot of time curating the choices to something I can managed and I am an expert in insurance.
Healthcare.gov has an incredible array of choices. For the 2017 plan year the number of unique plan IDs varies from two plans in two dozen counties in Missouri to over 100 choices in some counties in Florida and Wisconsin. The plans vary by network, benefit configuration, out of pocket arrangements, additional benefits like adult dental as an add-on and plan type. This is confusing.
State based marketplaces may have more compressed ranges. Covered California restricts choices to a single, standard benefit design per type per insurer. Even then, a resident in Redding, California sees 10 choices. A resident in Los Angeles sees 38 choices.
We have good evidence that increased insurer competition leads to lower premiums. Do we have good evidence that the increased competition leads to lower spending when compared to the counterfactual of optimal plan choosing? I am curious about that as increased competition, even increased curated competition creates an incredible number of choices that have to be sorted through and made.
drdavechemist
Why am I waking up to a plot of a titration curve in the middle of a health insurance post on Balloon Juice?
Another Scott
Haven’t read the paper, but I’m not surprised by the result.
The federal employee marketplace is (as I understand it) a cornucopia as well. But usually people find a way to restrict their choices.
1) Is my usual physician and hospital covered by this plan?
2) Is this plan run by MoTU that will screw with my claims and jack up premiums the first chance they get?
3) Is this plan backed by a union that worked to keep my costs low?
4) Do other friends and relations have good experience with this plan?
5) Am I willing to pay a little more for lack of hassles, or am I just starting out and need to save every penny in my pay even at the risk of less coverage or higher costs down the road?
Stuff like that.
Most people aren’t going to make a spreadsheet of eleventy-seven plans and always pick the cheapest one (taking into account all the scenarios and costs). I’m willing to bet that even most economists don’t. ;-)
Thanks.
Cheers,
Scott.
Snarki, child of Loki
Baskin Robbins ice cream shops.
How many people look over the ’31 flavors’, then decide on vanilla? Yes, it’s an old joke, but there is truth to it.
Cheryl Rofer
A few years back, there was some research on too much choice generally. The conclusions were that people did better with fewer choices. I HATE buying toothpaste, for one anecdata point. Also health insurance, although the standardization by the ACA has helped a lot.
I think you can probably tap into some of the references via Cass Sunstein.
Kay
Also, as a political matter, people hate it. They don’t want spend hours comparing all the plans and doing spreadsheets because what this comes down to is work you’re not compensated for and it’s not like you can do it once and forget about it- it’s every single year at least.
My measure is if you need an expert to explain your health insurance contract then it’s too complicated to be an ordinary consumer product.
satby
@Cheryl Rofer: yes, a lot of that research was based on retail, and too many choices induce confusion and “decision fatigue”.
Cheryl from Maryland
@Another Scott: I feel Another Scott has the right of it. There are many important factors besides price. My spouse, who does not have the best of health and is a fed, picked BC/BS high because he has the largest assortment of doctors for his multiple and unusual aliments (neural sarcoidosis anyone?) with the unfortunately correct assumption that he will have more weird health issues and needs the broadest plan possible. Our work also involves checking out the formularies for medications – weird aliments come with weird pharmaceuticals.
Another issue is that once one selects a plan, one doesn’t like to change. It is a PITA doing the research every year as PPs come and go from the plan. I can see many people sighing with relief after a successful year with a specific plan and then vowing never to put themselves through that again.
Another Scott
@Cheryl from Maryland: +1.
Change is hard, and painful. “If it ain’t broke, don’t fix it!” – even if it “costs less” to change.
Cheers,
Scott.
Eric U.
@Cheryl Rofer: problem with toothpaste is that they seem to always have one choice that’s a lot cheaper, but you have to search for it. Not sure why the toothpaste brands seem to have so many seemingly identical varieties, maybe has to do with presentation and shelf space
Anonymous At Work
Scott Adams got here first. https://en.wikipedia.org/wiki/Confusopoly: Confusopoly (aka Dilbert’s confusopoly) is an economic and marketing term referring to a purposeful act by a seller or group of sellers to confuse the buyer in order to ease the sale.
It’s a pretty good explanation of highly-complex products where the money-value of time in searching through the choices and picking the best one exceeds the extra value of the best choice.
Eric S.
@Cheryl Rofer:
I was going to cone here and point this out. Toothpaste was even going to be my example. Thanks, Satby, for finding a link.
DHD
This obsession with “choice” in the US healthcare system is something that endlessly baffles people in other countries, especially since the kind of “choice” that people actually care about (being able to choose a doctor who you get along with / is close to your home / has good reviews) appears to be just as impossible in the US as it is elsewhere in the world, if not more, since you have the added complication of finding a doctor who will agree to see you and is in your network, etc.
I mean, if you’re going to insist on having a private insurance system, wouldn’t it at least be better (and more “free market” like) to mandate that all insurance does the same thing and just have the companies compete on customer service, like they do in the Netherlands?
As they used to say in ancient Gaul, “these Romans are crazy!”
Major Major Major Major
@Cheryl Rofer: @satby: Was just coming here to comment the same things! Yep, and since we’re talking about decisions being made in a marketplace here, I could easily see how that research would map pretty directly to health insurance.
Walker
@Cheryl Rofer:
The Paradox of Choice by Barry Schwartz.
There is a very important point in buying insurance that is not covered in these measurements: whether you believe the insurance will actually pay the claim.
Despite several people telling me I pay too much for car insurance, I will never switch. My current insurer has always done right by me, with no hassle. When I was younger, I had an insurer drop me for an accident that was less bad than a more recent one that I have had.
balconesfault
I think it’s pretty clear that various things the GOP has been doing to the ACA since its inception have served to increase risk for carriers, and thus has led to reduced competitiveness in certain markets.
Has anyone noticed that the markets that have been most damaged by these actions have tended to be the most Red parts of our electoral map?
I suspect that if you did an overlay of where costs have gone up most, versus electoral tendencies, you’d have a fairly strong correlation – blue districts have done better, red districts have done worse.
If I were less cynical, I’d suggest that Republicans are screwing up by screwing over their constituents. But given that increased pain for their constituents just makes them more angry at Obamacare … I’m guessing this is regarded as a feature not a flaw for those more intelligent than Blake Farenthold.
Lyrebird
@Cheryl Rofer: Barry Schwartz’ Scientific American article on choice overwhelm and its consequences is a good intro. (links to PDF… next is to a pub. list) Sheena Iyengar has looked into consumer impact of this directly.
Fair Economist
@Snarki, child of Loki:
29 percent.
You’re welcome.
mdblanche
So you’re saying choices are like notes, there are in fact only so many the ear can hear in the course of an evening. I think I’m right in saying that, aren’t I?
sam
Everyone else has already said it, but it’s also called “analysis paralysis”. Too many choices overwhelm us and we end up confused and making no decision at all. Here’s another article about it: https://www.theguardian.com/lifeandstyle/2015/oct/21/choice-stressing-us-out-dating-partners-monopolies
Balconesfault
There’s been marketing research recently that shows that the more choices a consumer has, less likely they are to pick any of them at that moment. But of course that’s not exactly relevant here.
Fair Economist
@satby:
More choices increase regret and unnecessary post-choice reconsideration as well.
Shinobi
When my small company was recently bought out they gave us a “calculator” to help us understand how much we would spend on the HSA vs the PPO option. I knew I was going to need surgery pretty much immediately, so I was doing the math pretty hard. (Our previous plan had been a Gold plan with like a 90/10 split, you can’t even get it anymore, my partner had inpatient surgery and it only cost us 1200 out of pocket.)
And for some reason, the HSA kept coming up and saying I would pay less total out of pocket, even though the deductible was higher? I couldn’t make the math add up, and no one else could explain it to me. (Keep in mind I run the Analytics group at my small firm, and I am the only person who complained or double checked the math at our new 70k person parent company according to several HR people.)
I SHOULDN”T HAVE TO CHECK MATH TO PICK AN INSURANCE PLAN.
Also I had a family member who had to go through months of rigamarole to try to deal with paying for surgery after a snowboarding injury. They were insured but their insurer tried to deny their claim based on some of the things she had in her medical records. It was pretty bad. They told her before the surgery thta she was going to owe something like 125k. But they had no choice, she broke both ankles, there wasn’t goign to be any walking for her without it.
Just absurd.
MomSense
@Cheryl Rofer:
When I buy toothpaste I eliminate all the kinds with the giant flip top meant to allow the toothpaste to stand up. If someone leaves that stupid flip cap even partially open the entire tube will leak out all over your bathroom counter. It just so happens that those types tend to be more expensive and have less toothpaste in the tube.
Barbara
@Kay: And yet, people do this voluntarily while shopping for all kinds of other equally and even not so equally important purchases. My in-laws did not want to drive for medical care and I remember telling them that it seemed strange that they were willing to drive 30 miles to get a good deal on a toaster but bitched and moaned about having to travel more than 10 minutes to see a heart specialist (of whom there weren’t any where they lived, so they had no choice). The difference is that people adore shopping for bridal gowns or cars or other consumer products that give them greater pleasure. Even if you in theory have access to everyone and everything, then you are in the position of having to choose among doctors with basically zero information when you need them. We can only dumb things down so far for people.
Fair Economist
There are two different styles of decision-making: “perfectionists” who want the very best choice and “satisficers” who just want an acceptable choice. “Satisficers” are much less affected by many of the paradoxes of choice, including spending too much time deciding and post-choice regret. Of course with things like expensive insurance you probably should be a perfectionist. Logically people should be satisficers with trivial decisions (like which toothpaste) and perfectionists with important decisions. In reality there’s a strong personal preference. My husband is a perfectionist and agonizes over where to go eat. I’m probably too much of a satisficer, although I did make a analysis spreadsheet to decide what house to buy (it worked out pretty well).
Another Scott
@Eric U.:
I think the bolded part is likely very important.
No links, but I recall there’s lots of shenanigans that goes on in getting shelf space in grocery stores. Companies that do have the space likely use it to try to squeeze out competitors even if it means taking a (temporary) loss. Colgate and Crest might sell very little in their UltraPlain toothpaste formulation, but they don’t want Tom’s and Burt’s becoming stronger competitors, so they put them on the shelf anyway. Similarly “Special – Buy 2 get Travel Size Free” in excessive packaging takes up more space and leaves less for competitors, while also increasing sales (temporarily).
“Consumer Choice” is probably a secondary or tertiary consideration. I suspect that’s common in insurance products (as we’ve seen in the Silver Gap Strategy that David-Richard has talked about here), also too.
That’s my supposition, anyway.
Cheers,
Scott.
FlipYrWhig
Even just finding a basic doctor for basic primary treatment when you’re not even sick is a total shitshow. My wife and I have 4 graduate degrees between us and we have no fucking idea why we get these things from insurance companies or the doctors or whatever they are saying “this is not a bill” with arcane codes and so forth, and what you’re supposed to do after receiving them, usually nothing? It seems needlessly stupefyingly complicated — and that’s not even taking into account, like, illness or injury.
Cheryl Rofer
I found the discussion interesting at the time and still do now, because it describes my experience so well. I am definitely a satisficer, so the half-an-aisle shelves of toothpaste with no real differences baffle me. Are there people who really care about all those characteristics, when it’s likely that the brushing action and flavoring do most of the work? And they are all in shiny silver packages. I do have a small brand preference, largely because of cost. And if I am going to look at all those characteristics, it’s nice to have peroxide for whatever it may do in whitening, although its effect seems largely to be foam and it’s in pretty much all toothpastes now. I usually wind up with something labeled “pro-health,” because I always wonder if those not so labeled are anti-health.
TomatoQueen
@Another Scott: The federal employee marketplace starts as a cornucopia but because Open Season is so short, ends up as one more pain in the buttox I gotta deal with just before xmas shopping. There Used To Be a tool to compare the offerings and it was fabulous if complicated and time-consuming, but worth the effort. Naturally this was taken away as a freebie by OPM but may be available by subscription. The explanation for removing it was so vague as to be silly, and one had to fall back on OPM’s own comparison charts, which last year were clunky. Friends and coworkers are a huge influence in my shop, which was how I chose KaiserP a few years ago. Ten of us in one section seemed reasonable enough so I was the eleventh. KaiserP promptly turned around and got too big for its panties, pissed everybody off, and all eleven of us have chosen among the other plans, thus giving up the one great thing about KaiserP, everything contained under one roof, in one computer system. KaiserP was the least expensive plan for my needs too, and I ended up with a “for feds only” Aetna hmo, one price level higher with a lot of the same benefits, including free labs. My doc’s office and my preferred emergency room are 1/4 mile from my home. My union facilitates employee insurance information workshops but doesn’t advocate for any of the plans as far as I know. All of that said, this is my experience as a fed in Northern Virginia, and there are many plans that exist in this area only, as well as other plans only for the State Dept. or overseas employees, as well as for other regions. Everyone’s mileage varies.
Barbara
@Fair Economist: You can’t be perfectionist because there is no possibility that you will have perfect information. Even if you know a lot about your current health care condition, you don’t know if you or your family members are going to be diagnosed with some other condition. You can only make decisions based on probabilities. This is probably true for all kinds of goods — if you plan a vacation to a destination that normally has good weather that time of year, you could go and get hit with freak bad weather. But still, that’s one reason buying insurance is so stressful. I try to get people as much as possible to narrow the window to this year or the current concerns if any — what is most likely to happen between now and when you can change your mind about this. People need as much of a strategy for how to think about this as they do about who is in the network, etc. Now, the other problem identified above regarding how hard it is to figure out how the plan works financially, that drives me crazy. That really should not be the case, but that’s not an absence of information so much as it is something that is needlessly complex in the way that it operates.
Barbara
@TomatoQueen: I suspect that OPM felt like it was enabling adverse selection. This is a bit of a problem with the FEHB way of doing things.
ETA: What I mean by that is that with a large number of differentiated choices, people select benefit plans based on how much they plan to utilize benefits specific to that plan. It led FEHB to eliminate certain kinds of benefits altogether, and to insist that all plans meet a certain level of uniformity.
JustRuss
Another problem with so many choices is that, unless you have a chronic condition, you don’t really know what plan is the best for you. Low cost/high deductible sounds great, until you actually need it. “How much risk are you willing to bear?” is a great question when it comes to investing, but for someone scraping by on minimum wage shopping for insurance it’s kind of insane.
Roger Moore
@Another Scott:
As I understand it, most supermarkets now lease their shelf space to the brands they’re selling and leave what to do with it up to those companies. They don’t even stock the shelves themselves; people from the companies leasing their space do it.
Yarrow
The whole thing in choice in health insurance vs toothpaste is an interesting thought experiment but ultimately not a great comparison. If you choose wrong in toothpaste you’ll be out less than $10, you likely aren’t going to die as a result of your poor pick and you can just toss it if you don’t like it and pick another one the next time you’re at the store.
With health insurance you’re dealing with everything from prescription costs for an unexpected one time medication or a medication you take daily and that may save your life, to unexpected accidents that you need treatment for, which can be minor or serious, to grave diagnoses. You are dealing with your life. Buy the wrong insurance and you can go bankrupt from deductible/out of pocket costs or die because they don’t cover that hospital or doctor when you get hit by a car visiting your family the next state over.
Too many choices is one thing, but extremely high consequences for making a poor choice is another thing entirely. It’s not like you can just throw your health insurance policy decision in the trash and pick another one tomorrow. You are stuck with the consequences of your decision for a year, even if your decision bankrupts or kills you.
Dave
@Shinobi: Times like this I’m so damned happy to be covered by the VA. It has flaws but I’m in an area with a good hospital that is very aggressive about using outside care for things outside their expertise. I don’t worry about bills, updating insurance, ever being asked about if I can pay at the door. I’ve spent a grand total of maybe $45 out of pocket over five years I am so damned happy I don’t have to worry about all this bullshit. And I haven’t noticed particularly long wait times compared to private practices.
gvg
I recall choosing my health insurance 23 years ago and i wanted low deductible because starting wages did not leave much room for saving at first but I also asked about a reputation for actually paying claims without to many hassles. I was healthy for 20 years and barely used them. I checked from time to time on the reputation and avmed state employee kept a good reputation so I kept it. 3 years ago I found cancer, and found out they do pay claims when you really need them and the doctors were good and all the ones I needed. I paid 200 for surgery and a bunch of 20 and 40 copays. only one charge was briefly disputed and I expected that one. they paid anyway. the whole time I was going through chemo, i compared it to others I had heard of and wished every one could have the same. I was way too sick to have spent loads of time on the phone arguing about stuff I didn’t understand myself. I guess I would have if my life depended on it but i was able to take my meds and sleep a lot.
Chet
I call this paradox “57 Channels and Nothin’ On“, after Bruce Springsteen.
Shinobi
@Dave: Sometimes it makes me sad I am too fat to have served in the military. I have a good friend who just left and has had good care through the VA while my own has been SUCH a pain.
Villago Delenda Est
Once again, information disparities raise their ugly heads to screw up the market solution.
Greg in PDX
It is funny to me that the people who complain that the ACA eliminates choices for doctors and plans are the same people who brag that they have their insurance through their employer, where they have no choices at all in plans and only get to choose doctors from an approved list.
Villago Delenda Est
@Greg in PDX: These people also rage about “government bureaucrats” when their health care is dictated by private sector bureaucrats.
Raven Onthill
My family has a rather expensive plan that avoids the two local provider networks of which one is a Catholic system following the recommendations of the US Council of Catholic Bishops (not safe for young women and old farts) and the other has a history of extortionate collection practices – actually lost a big lawsuit over it.
Price is not the right reason to pick a doctor or a health insurance plan. It can be a reason to reject a plan, as in “Oh, that’s great and we can’t afford it,” but, as in other areas of life, if one can afford it, it is best not to make it the primary reason.