In yesterday’s post, I had a great back and forth with Lobo on decision strategies:
While the usual thinking is to get to the optimum plan, actually the less cognitive intensive method is to choose something that satisfies 80% of the most important areas. Optimizing the other 20% is usually not worth the cost… There’s a reason for insurance brokers, finance experts, etc. Maybe this is a place for AI. Plug in your situation and have the algorithm spit out the 3-5 best fits.
I’ve mentioned this many times in the past. I am firmly convinced that if I was facing an array of 20, 30, 40, 50, 121 distinct health insurance choices on Healthcare.gov that I would only pick the optimal plan by random, dumb luck. I am firmly convinced that I can avoid the worst plans. And this is me; I’m someone who spends most of my professional life thinking about health insurance, benefit designs, payment models and the right hand skew of risk. I like this shit. I’m weird. And if I am convinced that I’m unlikely to make the optimal choice when there is a large, uncurated choice menu, I’m very confident that unrestricted choice lists will lead to sub-optimal choice on a regular basis.
I agree that this is a place for AI; Jon Gruber et al have a 2020 working paper that looked at the improvements in choice selection once an AI assist was added to a Medicare Advantage exchange:
The addition of AI-based decision support improves outcomes by $278 on average and substantially reduces heterogeneity in broker performance. Experts efficiently synthesize private information, incorporating AI-based recommendations along dimensions that are well suited to AI (e.g. total expected patient costs), but overruling AI-based recommendations along dimensions for which humans are better suited (e.g. specifics of doctor networks)… While AI is a complement to skill on average, we find that it is a substitute across the skill distribution; lower quality agents provide better recommendations with AI than the top agents did without it.
I want to pull back a little more and talk about the different choice strategies people can use.
There is optimization. This is a search for the “best” plan without regard to the search costs. An individual makes a comprehensive list of all relevant attributes and has a model of substitution, trade-offs and minimal acceptable values. And then they look through the entire universe of choice to find the best thing possible. This works pretty well when looking for a candy bar at the super market check-out line (Mounds!) but on complex products, it is cognitively expensive.
There is satisficing. This is a “good enough” solution. With satisficing, the chooser sets up a list of minimal acceptable criteria. And once they find something that meets that acceptable criteria, they stop searching. This is, at least, a cousin to the “80%” solution Lobo mentions above. Satisficing acknowledges search and information costs and that these costs can be high for minimal gain. An optimal choice is possible, but depending on the size of the choice menu, it could be unlikely. But good enough is often good enough as we all know from the pre-COVID days of looking for a parking space in the mall parking lot at 2:00pm on the Saturday before Christmas.
Minimizing-maximum regret is another decision choice strategy. In mini-max, the objective is not to choose the best plan. The objective is to pick out the least bad outcome. This is a way of dealing with uncertainty. In the insurance context, this probably leads to higher premiums in the pursuit of lower out of pocket maximums, but that is a reasonable trade-off. Mini-max when applied to a large choice menu is very unlikely to pick the optimal plan. Instead, it is a trade to get the least downside at the cost of giving up a lot of upside.
And then there are decision strategies that range from listening to what someone said on Facebook, information overload, inertia and best guesses.
From a choice architecture view, one of the most important things that a choice architect can do is eliminate the objectively hideous choices from the choice menu. Most HR departments do this; Duke offers four employee health insurance plans even as there are 50+ plans offered on the ACA Exchange in the local community. When I worked at UPMC Health Plan, HR offered either four or five plans. HR did most of the hard work of getting rid of the objectively bad choices.
And there is a lot of pay-off in getting rid of the worst choices. Abaluck and Gruber found that restricting the choice menu reduced consumer costs and improved average choice quality. Abaluck et al found in the Medicare Advantage space that eliminating the bottom 5% of Medicare Advantage plans on the metric of difference from expected mortality would lead to thousands of additional life-years for beneficiaries. The reseach on dominated plan choice where there is an objectively inferior plan being offered consistently shows several hundred dollars in additional costs that should not be paid but are.
So when making choices, having a good (or at least a good enough) strategy is important at the individual level, but good choice curation and architecture is important as well.
sherparick
I read a short blog post that Medicare and Medicare advantage are introducing a lot of complex choices (with opaque information and lots of legal language) to people of whom increasing numbers as they age suffer more & more cognitive disorders – approximately 30% for those over 80).
P.S. I would like to see a study to see if there is an increased in cognitive disorders among those who regularly watch 4 or more hours of Fox News & Fox Business News.
Butch
Sorry, but here in the Upper Peninsula the options are limited; you can choose from a selection of nine Blue Cross plans that overall range from terrible to really awful or go without.
Nelle
I found that what I wanted nearly to the point of need was an unobtrusive plan that let me ignore it, let me pretend I was back in New Zealand with National Health Care and none of the paperwork and busy work of the American system, which I find exploits me as an unpaid worker in getting my care straightened out. And one reason my costs were high was due to the state I was living in, where fewer people were buying the Supplemental. Moving to Iowa should have lowered my costs by $100 a month but, since I had a possible TIA before moving, I’m having to wait 24 months before I can apply to be covered in my new state. Two months to go. I was happy to find someone who was clear as a bell when talking to him, as opposed to the supposed brokers who were giving me the bum’s rush to buy this or that plan. Right. Now.
But, no, I’m not scrutinizing my bills for fraud or escalated charges. Not being paid to work for either the government or an insurance company. Every day, I’m conscious that I have less time left in my life to do what is important to me and that’s where my focus is. All that paperwork gets tossed in the box.
lahke
Still employer-covered, thank FSM, but heartily concur in the choice of Mounds candy. Will also take Snickers.
Scout211
@Butch:
This was my point in the discussion two days ago. Choices for Medicare Advantage definitely vary by location. California is full of many excellent, good and bad choices for Medicare Advantage, but it depends on where you live because Advantage plans typically have narrow provider networks. In my rural California county, like your area, there are no options for Medicare Advantage unless you want to drive over an hour for all of your appointments. And that is if the plan accepts enrollees from outside of the location of their network.
As I also mentioned, Kaiser is a very popular option for Medicare Advantage in California. Many of my friends are on a plan with Kaiser and are very happy with it. But Kaiser requires you to be a resident of a county with a Kaiser medical facility. So one of my neighbors maintains two residences and lives in the next county the required days per week to qualify as a local resident there.
sab
I aged out into medicare, but similar choices on plan d and supplemental.
My husband has a bad back with stenosis and collapsing disks. His medical history is physical therapy and occassionally orthopedic surgery that is scheduled months in advance after many consultations. He went with a medicare advantage plan tied in with our preferred hospital chain. He ‘d be going there anyway. But it is a local plan, with the entire network in our county.
My medical issues so far are cardiac arrythmia. My medical events are all sudden onset and emergencies. Back in before times when we thought we could travel during retirement I decided I needed a plan with a national network in case I collapsed on vacation. Now I would probably be better off on his plan.
The network issue can be a big deal. I live in Ohio which has lots of counties, many of them small. Most people I know live in my county and work in the next county that has Cleveland jobs. For a lot of my working life my employer provided imsurance did not cover emergency services to hospitals in the county where I live.
Another Scott
I’m very interested to see who Biden picks to be the new Andy Slavitt at Medicare/Medicaid Services, and to see what improvements will be made to Obamacare and everything else. There’s far too much friction in the system (including too much choice (YOU ARE IN A MAZE OF TWISTY LITTLE PASSAGES, ALL ALIKE.) and we know enough now to prioritize changes that will make lives better.
Thanks for all you do here. It’s appreciated.
Cheers,
Scott.
(“Who doesn’t like cocoanut.”)
laura
Very thankful to have Kaiser coverage. Retired in September and waived continuing on my employer plan – it was overly excellent 100% employer paid, bc the cost far exceeded are budget and expected needs. Covered CA offered a raft of choices and we selected a bronze plan bc we could keep our wonderful primary care doctor. That plan exceeds our mortgage payment. I’m hoping we can qualify for a subsidy due to the steep drop in income and even more so as we qualify for Medicare at 65 or sooner under a Biden/Harris administration.
Cam-WA
I’ve had the misfortune of being on Medicare for 3 years, and the choice universe for Medicare Advantage plans feels similar to what ACA folks have to put up with.
What a crazy system! We have people working for outfits large enough to offer health insurance a mediated small number of choices, but us old folks and those that don’t make enough money and are on subsidized ACA plans are completely on their own. At 67 I can still do this quite well. At 77, I doubt that will still be the case.
This is a good example of why unrestrained choices (the “market”) is best for business, but not for consumers.
Lobo
Thank you for mentioning me in regard to the issue of choice. I hope I didn’t steal your thunder. Your stuff is wonky, but terribly interesting. As in everything the details matter and smallest detail can have the biggest impact. Many times 20% of the details have 80% of the impact. Figuring out what those 20% are is the trick.
Bill Arnold
Nice summary of decision strategies/heuristics.
FWIW, this applies at all scales, including longer timescales. Avoidance of hideous global futures should also be a goal (especially (but not only) for altruists), e.g. no thermonuclear war, no business-as-usual fossil-carbon-burning/global heating resulting in a 90 percent reduction in global human population and the partial collapse of civilization, etc. (There are some tech-driven etcs that will emerge in the next 20-30 years, including in biotech, panopticon(/computational soft-and-hard dissidence control) enabled totalitarianism.)
One doesn’t usually describe e.g. arms control specialists as choice architects, but that’s sort of what they’re doing, if one squints. Those involved with and pushing the “Great Reset” are also doing this (well, attempting to, with honorable vigor). (Vaguely/sort of disaster capitalism in reverse.)
J R in WV
When I retired, early, I went with the employer sponsored healthcare, which turned out to be OK. When I qualified for Medicare, I again went with the employer/pension provider supplemental with Humana.
I don’t much care for Humana, as they seem somewhat intrusive, but they appear to be OK so far as required medical care. They want me to spend time on the phone talking to their computer for every doctor’s appointment I have — they would have to pay me in order for me to do that. I have had the same family doc for 5 years now, and how quickly he sees me is not part of my satisfaction computation. How well he treats my problems is.
Their prescription “formulary” is a concern, as they appear overly willing to drop excellent medications to treat my issues when they become more expensive. Apparently the generic med I used for a chronic issue was bought by a MBA trustafarian and the price boosted by 3000% or so. So now on a less effective but still functional drug. Hard to blame them for that response to the hi-jack attempt, though.
But getting into selecting a new plan just because the year has rolled over is not my idea of fun!
And Snickers with Almonds instead of peanuts for me!
And thanks for all the healthcare wonkery, much appreciated!!!
David Anderson
@Lobo: You made some great points and responding to smart points is a fun (& easy) writing prompt.
Baudolino
Have you heard of the Princess Problem? A fairy tale princess must choose among a hundred suitors the one best man. All the suitors are monotonically ordered by value. She interviews them one by one, and in each case must decide to marry or to reject. What is her best strategy, if she wants to get the very best husband? What if she wants to just get a good one?
https://en.wikipedia.org/wiki/Secretary_problem
Seems relevant.