Last week, I had two papers go through meaningful milestones. The first paper on dominated plan choices in California Petra Rasmussen and I sent back to the editors after we approved the copy-edits. It is almost ready for public consumption and I can’t wait to share it with everyone! The second paper was a joint collaboration with Petra and Coleman Drake, another very frequent co-author. We submitted the manuscript last Thursday. It went under review over the weekend. That manuscript integrates three streams of research that the three of us have been working on for several years. Petra and I have been working on dominated choices; Coleman and I have been working together on zero premium plans while Coleman has been working with other researchers on choice inertia. We got to play hard with those concepts. During the process of creating that manuscript, I realized how much my thinking has changed in the past five year on ACA marketplaces.
In 2014-2017, I was almost exclusively a price and relative price above all else in how I thought about plan choice. I assumed that lower net premiums were the cause and solution to most problems. I geeked out on silver gapping, I gawked at large county level discontinuities in pricing. I thought that advertising and navigation mattered, at least a little bit but not a ton. However, my thinking at this point was mostly micro-founded economic analysis where low prices are better and high prices are bad. I, of course, acknowledged that plans would have different attributes and some plan attribute sets would be worth a higher willingness to pay for some buyers than others. Some people would prefer and pay for a bigger network or a PPO plan and thus the pricing of those plans would be higher. But I was fundamentally thinking of everything in terms of pricing with the assumption that future year markets were very flexible and responsive to changes in relative pricing from current consumers. Some of that was misreading the data that 40% of plan buyers in each year were new to their insurer — these were mostly people coming into the market for the first time. Some of it was just misreading the market.
I really started to think that price mattered, but so did everything else in spring 2017. We had seen enrollment fall off in the last 10 days of the 2017 Open Enrollment Period when the federal government went from supportive to opposition of the law. There was no price change at that time. There was a series of cool papers that looked at advertising effects in Kentucky and elsewhere. By the fall of 2017, I was thinking in terms of pricing but had started to think in terms of information as well for the first time. By fall of 2018, I was starting to think that pricing was being dominated by other factors as I had observed that there were free Gold plans in Oklahoma for anyone subsidy eligible but not a mad dash of folks into those free gold plans from dominated bronze and silver plans. I had also seen in Tennessee a massive affordability shock in some counties that had gone from no Silver gap between the cheapest silver plan and the benchmark offered by a monopolistic insurer to the largest Silver gap in the country as a new monopolist with a different strategy took over the “bare” market with massive discounts. If pricing mattered, then zero premium CSR-94 silver plans should have juiced enrollment in these counties. It did not.
This was weird. Crespin and Deleire had shown that insurer exit led to large enrollment losses. Coleman and I had shown that something meaningful and big was happening with zero premium plans on the level of county-year enrollment. We were also seeing huge relative discounts in subsidized pricing showing up in monopolistic counties in non-expansion states while Trachtman found adverse selection from the political lean of a rating area. This was shaping my thinking as well as everything that Herd and Moynihan have written on administrative burden. And then between Coleman, Petra and myself, we had a very productive research year in 2020 with stuff to come out in 2021 and 2022 on inertia, frictions and other non-cash considerations for enrollment.
Right now, my head is at the following place:
- Good pricing is better than bad pricing
- Pricing is not everything
- Information costs are massive
- Inertia is massive
- Lubrication is critical for decent (but not optimal) choice
I’m not sure where my head will be in the next couple of years, but I felt like I owed it to you all to explain how my thinking has evolved over the past several years to a very heavy behavioral econ point of view.
MattF
Ignorant commentator here… but possibly similar situations in the financial industry wrt retirement accounts have ended up emphasizing the importance of default choices and the avoidance of bad choices.
Lobo
Loved your articles and I have two words for you: Behavioral Economics. It encompasses choice inertia, information asymmetry, and other factors you are now considering. Yes, people are people and that irrationality and life feeds into these situations. I come from a behavioral economics background.
Walker
I agree that Inertia is massive. In both car insurance and health insurance my number one concern is “will this insurer pay claims that it is supposed to cover”. For example my current car insurance has treated me really well even in cases when I was at fault. So no matter how cheaper anyone else says they are, I am unlikely to change them.
In contrast I had optional dental under my employer. They denied a claim because they said a new crown was actually a replacement. Even when the dentist sent them a letter telling them they were wrong (this was a new crown, and therefore covered), they declared my dentist a liar. So I dropped them and went to an alternative.
Ohio Mom
Not at all surprised to hear this example of you having the intellectual honesty and integrity to accept data that challenges your assumptions and then revise your belief system accordingly.
And it is always heartening to hear about someone who loves their work.
Anyway, those are my main takeaways, I don’t think it a secret that I can’t always follow the details of your posts. I am mostly reassured that someone is fighting the good fight on my general behalf.
dnfree
The post you have promised! There is a value to evaluating data strictly logically (or as close to that as we can get), and there is also a case for evaluating what actual people do in the real world. Having knowledge of the first (what people should do in an ideal world) gives you a good background to attack the second (what they actually do, or more often what they fail to do through inertia). Good points by the other commenters here.
rikyrah
@Ohio Mom:
That is what made Mayhew special from the beginning :)
Baud
Fine, but don’t let it happen again.
David Anderson
@Lobo: Oh yeah, I am so far down the Behavioral Econ rabbit hole it is getting dark in this cave :)
citizen dave
This is an interesting post–thank you for it and all the other ones. It’s interesting to read about how your thinking has changed as experience has been gained.
I went through most of a phd economics program in the mid-1980s, and probably should have sought out some behavioral or other vein going against the “rational economic man” grain. I agree inertia and informational barriers are huge. People are fairly lazy and stick with what they have. I guess that’s why, in this area, people (my wife recently) get bombarded by medicare program invitations when they are turning 65, because once they make a choice they tend to stick with it. (Fortunately for her she’s on my insurance so has been able to defer the bigger decisions).
Yet, if a company pisses you off, there is change, as Walker notes above.
David Anderson
@MattF: I’ve cited the 401(K) default work multiple times since January if that helps.
Brachiator
@Ohio Mom:
Great point, and the significance of this had not really hit me til now.
Too many policy analysts stubbornly cling to their base assumptions, look for confirming data, and ignore fruitful new paths.
People willing to change their minds and who have the flexibility to make sense of new insights are worth their weight in gold.
Another Scott
@Brachiator: There’s a good recent tweet with Fauci where he explains how Science and scientists are supposed to work.
Yup.
Cheers,
Scott.
Kelly
I’m turning 65 in a few months and wading thru the Medicare advertising avalanche. Inertia says stay with Kaiser. But traditional Medicare and the alphabet soup of medigap supplemental and drug plans offers so much flexibility. Too many choices.
Baud
@Another Scott:
?
I like that he’s following Biden’s method of enumerating his points.
Also, too, I not yet sure whether Mehdi Hasan necessarily falls on the “good faith” side of the line. The jury is till out.
Brachiator
@citizen dave:
It is not always easy to make comparisons, or even to understand what options you really have.
For one of my employers, I chose Kaiser because I had it as a kid via my parents, the facilities were near my home and I understood how they operated.
When I changed employers, I selected a different plan because Kaiser was not offered, and it was a pain just to select a primary care physician. I had this thick book from which to choose, but no idea of the relative quality of any of the individuals. With Kaiser, I felt that there had already been some screening in doctors who could be part of their service. This might have been a totally wrong assumption, but still that was part of my thinking.
An earlier comment reminded me about choosing retirement investment options. I was more comfortable in researching various plans and could use other references to compare costs, quality, etc.
I don’t feel as comfortable in trying to wade through tons of health plan offerings and trying to evaluate them.
StringOnAStick
@David Anderson: I saw the bad default option in 401(k) plans up close with my BIL (who has since passed). He worked many years for Meijers and being a frugal guy he always encouraged his co-workers to get into the company 401(k). The ones who refused and called it “stupid” are another story, but I helped him transfer out of that plan to the much better offerings at his new job, and it was shocking what high load crap plans Meijers had, absolutely appalling. These are low wage retail workers who would be best off with plain vanilla index funds but all they had to choose from were expensive and actively managed funds; it’s like they wanted them to lose. Sick, and such negative paternalism.
Kelly
Yes, this. Also Kaiser has a reasonably competent internal info sharing system. My first wife spent her last five years in treatment for cancer with communication problems between providers or insurance every 6 months or so.
Brachiator
@Another Scott:
There’s a good recent tweet with Fauci where he explains how Science and scientists are supposed to work.
I will take a look at this. This nonsense bothers me on all kinds of levels. Conservatives and others with some weird anti-authority chips on their shoulders are using this to try to refute science and health authorities.
Also, there are people who want to believe that science is like religion, that there is One True Answer.
Lastly, there are people who insist on ignoring political reality. Trump was fighting Fauci from the beginning and mismanaging the pandemic from the jump. Had Trump said, “we are distributing 400 million masks by Friday. Wear them,” then people would have been able to easily comply.
But that was not the political reality.
Anonymous At Work
Welcome to the Darkest of the Dark Sides of Behavioral Economics. We’ll take your coat only because our parents taught us well and we get the shakes if we don’t do it. We don’t have cookies but do have freshly made salsa and chips…since company is expected and we do that for company. Richard Thaler’s running late but Sunstein is here as are a lot of California’s best economists…and Krugman, of course…
guachi
I occasionally get into arguments with people about health care when I say that health care/insurance markets don’t act like other markets because of information (or lack thereof). It’s very difficult to make good choices when you don’t have enough information or can’t properly evaluate that information.
Obamacare has tried somewhat on the information front with plans labelled as metals. I’ve played enough D&D to know that platinum is more valuable than gold is more valuable than silver. And anyone who has followed the Olympics knows bronze is last. But that still is only a starting point.
David Anderson
@Anonymous At Work: Okay, I’ll come over and play even if there are no cookies but I really would like cookies next time.
Lobo
Beware of rabbit holes. Alice had an interesting time in one. I am not sure which is more confusing picking among insurance plans or Wonderland. Wonderland has lots of lessons for us. I am just not sure what they are. ;)
Martin
The answer to the question in 3 is that in almost all cases BA/BS slightly subsidize PhD programs, and MA/MS programs heavily subsidize PhD. You’re welcome.
Martin
@Brachiator: There’s a variable in this which gets overlooked. Many asian countries have cultural traditions to mask when sick as a courtesy signal to others that you are sick. And many times they do this even when the mask has no functional benefit.
So China masking up doesn’t necessarily mean that Chinese scientists determined that masks help. It just as likely means that Chinese sociologists (such as they have them) determined that the way to get the public to pay attention to these measures and take them seriously was to mask up. The US doesn’t have a similar social signal, unfortunately.
Martin
@Brachiator: One reason why I like Kaiser is that the doctors are just employees. There’s no fee for service. The doctors own the insurance side of the business so there’s a collective benefit to efficiency and no personal benefit to excess care.
It doesn’t guarantee good outcomes, but it’s a virtuous cycle that at least should statistically produce good outcomes. In our experience it does.
Brachiator
@Martin:
This adds another wrinkle, I suppose. Americans are either looking for a hard scientific reason to wear a mask, otherwise it is a communist plot again Baby Jeebus.