This is going to be a bit of noodling post. I apologize for that. I need to get some thinking together as I’m fairly sure that I’ll be heading down this intellectual path for a while as I have been on it without full realization for the past couple of years.
Insurance is confusing.
Insurance is costly.
Insurance can be costly even when there is no upfront premium.
Total costs are not just cash costs. Total costs are a combination of cash costs plus attention costs plus transaction costs. Since health insurance is confusing, significant attention needs to be paid to determine if there is something better, and if there is something better, if it is worth switching to. Some products make the experience of taking my money and then giving me what I want to be a very easy thing (my daughter attender her first virtual concert on Saturday for a band she loves, and that payment experience was easy — they really wanted to take my money and send me a link and a secured password in 32 seconds or less).
Other things have significant switching costs and potential cancellation costs. Health insurance can have high switching barriers that are a function of tacit knowledge, networks and health status. People in perfect health and who have no relationship that they wish to maintain have far lower switching costs than people like my mother who are medical zebras with a long and complex medical history where her care team knows her well and knows that they should expect to see weird things when she is complaining about a normal set of symptoms. I use urgent care once a year. My PCP sees me once a year. He tells me to lose 10 pounds to avoid future problems with my knees.At this point in my life, I could switch insurers and doctors with little cost. My mom has a very different cost of switching her doctors than I do.
So we know that switching costs are real and not uniform across the population. We can also suspect that switching costs are not uniform across time and within the same individual. Kathryn Swartz and John Graves argued in 2014 that predictable seasonanility of income and financial stress makes the current Open Enrollment Period that ends on December 15th for states that use Healthcare.gov to be an extremely expensive time of the year for a cognitively and financially expensive task. Attention is divided and cash flow is low. Last night, I discovered that I had left a present that I had bought for my wife in October in the car. An open enrollment period that extends into normal tax rebate season would make people make a significant financial decision at a point in the year when they are likely to have large lump sum cash distributions coming in and they are not navigating the holidays.
These cost components are variable. For the subsidized ACA buyers, Silverloading has mostly made the cash costs go down while potentially holding attention and transaction costs constant. The proliferation of Medicaid work requirements are mostly a means of significantly increasing attention and transaction costs. We saw those costs are massive in Arkansas. Some of my current work suggests that the payment arrangement transaction cost is notable in the ACA market as people who did not have to make a payment arrangement as they had a zero premium plan were far more likely to start their insurance in January compared to people who had to make a payment arrangment. Laura Dague found significant enrollment losses due to the institution of a new Medicaid premium that could be a combination of cash costs and transaction costs.
From 2013-2017 I mainly focused on cash costs. Since then, I’ve been thinking more and more about both the choice costs and the transaction costs. Until perhaps two or three weeks ago, I had not realized that I have been putting together a non-cash cost research agenda over the past couple of years but with papers on the value of political leadership changes and enrollments, television advertising, automatic re-enrollment, dominated plan choice (forthcoming!) and the administrative friction of non-zero premiums, I’ve developed a string of research that heavily leans into non-cash costs. This is in addition to my cash cost research with plan affordability and zero premium plans papers plus everything I write in the gray literature and here.
I need to noodle on this more…..
scottinnj
I’d not underestimate the power of inertia i.e. the ‘devil you know’. I have been helping my Mom navigate Medicare Advantage plans. Every year I look at a few and one maybe seems a little better (few extra frills) but her argument comes back to ‘I know which doctors are in my plan and when I have problems I know how to handle it with the insurance company’. The costs of trying to figure out a new insurer are too high, she is never going to switch. Of course, Humana also knows that she is never going to switch and no doubt prices accordingly. In theory, say, United Healthcare should be able to make a simple case to me and her why they are better, but good luck getting clear answers there.
wvng
I always appreciate your noodling, even when you don’t explicitly say that is what you are about. Thank you for keeping jackals thinking in this complex policy environment.
Another Scott
Indeed. Attention costs are huge. My J goes to a physical therapist who doesn’t take insurance. So every few weeks j gets to submit the paperwork to BCBS for reimbursement. Then wait a few weeks for them to complain that the codes are incorrect or that they need more information. Codes that have worked for years; information that she sent them months before.
It’s horrible.
Attention costs are another form of Opportunity costs. We only have so much of them, and these companies should not be able to demand so much from the rest of us…
Looking forward to your analysis.
Cheers,
Scott.
Suburban Mom
This past year has made me really appreciate this issue. My husband is retiring so we needed to figure out whether he should sign up for my employer’s plan as my spouse, or opt for Medicare and the various supplements. This turned out to be like comparison shopping for mattresses. The names of the plans are pretty meaningless to laypeople, and maybe to everyone. My mom is in her mid 80’s and her executive function is not what it used to be. We were also trying to help her. My siblings and I (including a lawyer, a business owner, and an MBA) collectively probably spent two work weeks trying to figure this out. I can’t imagine how people without the privilege of significant education and experience get this done. I’ll be very interested to see what you and your colleagues learn.
Ten Bears
Maybe “insurance” is the problem?
Ohio Mom
I sometimes say that if we spend one-third of our lives sleeping, what percent do we spend managing our health care costs?
There are the calculations in choosing a plan, pouring over bills, arguing about bills, the list goes on. It is a drain on both a micro, individual level, and a macro, societal level.
We are so enured to it all, we forget to step back and appreciate how deeply corrupt the system is.
Kelly
I’ll be transitioning from Obamacare to Medicare in June. Like you I barely touch the health care system. I looked a bit at the Medicare options and what a complicated mess. We’re with Kaiser so Kaiser Medicare Advantage is the simplest option. But if you ever want the flexibility of Medicare with the whole alphabet soup of parts you have to pick it to begin with. I’m planning to set up a consultation with an expert at healthcare.oregon.gov/shiba/pages/index.aspx in March.
StringOnAStick
@Kelly: We had a good experience with the OR healthcare system; my husband explained the huge changes in our lives and that really helped us get a good plan that is also affordable. Suddenly having zero income helps with that.
jrkau
It’s just a guess of course, but i estimate that the stress cost of dealing with medical ins choices every year for myself, wife and son are about a half year of my lifespan. Since I am already 70, i often think i should just forgo medical insurance and spend the money on term life.