Open Enrollment for the ACA ends next Tuesday for people who use Healthcare.gov There are a lot of choices to make. Margot Sanger-Katz at the New York Times has a great article on the challenges of choice for insurance products:
When Paul Krugman, the Nobel-winning economist and a New York Times columnist, started a teaching job at the City University of New York, he had a choice between one union health plan at The Times and an array of university options, “which I found incomprehensible,” he said in an email.
“I asked H.R. at CUNY if they could explain the differences; they said no. So I went with The Times, precisely because it didn’t require that I make a choice!”
In Seminole County, Fla., right now, Obamacare customers can choose among 174 different health plans…
But it turns out in real life most people are terrible at picking the health plan that is right for them. Health insurance is a complicated financial product, and study after study has shown that people routinely pick bad plans, even choosing options that leave them worse off financially in every possible scenario. And, because people are so bad at choosing good plans, the market often sends weird signals to insurance companies, encouraging them to offer more of the wrong plans instead of the right ones.
Choice is tough. It is tough for me. I was speaking with another reporter who was putting together a similar story and gave the following quote:
“This is what I do for a living and what I do for fun, but if I had to look at 50 choices, I probably wouldn’t make a catastrophic choice but I wouldn’t make the optimal choice either….And if I’m not making the optimal choice, I guarantee you my little sister isn’t making an optimal choice.”
When you go look at your options, you have plenty of decision rules to potentially follow. You should seek help if possible. And then you should adopt one of two strategies:
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.
Uncurated choice is challenging. Accepting that optimal choice is unlikely except by chance can be liberating.