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…..