Meyerman asked a great question in comments yesterday:
Who else, besides the insured, has the incentives to help the insured make the right choice? Other than policy researchers like yourself, is there anyone invested in getting people the best value for their money.
There are few viable business cases to help people find optimal choices. There are decent business cases for a lot of actors to help people find decent choices the first time, but few long lasting business cases for consistent great choice.
We’ve talked about this before in the context of dominated plan avoidance:
more importantly, why is this systematically the case instead of a matter of individual inertia or failings?
I think the short answer is that there is no one making money on good choice selection.
An agent either gets a flat commission per month enrolled or a percentage of sold premium. If they are given a flat commission, then the extra work to move someone out of their default plan and into a new plan only pays off if the person first recognizes that the agent did them a solid and then comes back in future years. This is a highly discounted revenue stream for the ACA individual market as a lot of people move in and out of the marketplace. If the agent is paid as a percentage of premium, their short run incentive is to place people into the highest premium plan possible. There are very few agents who are explicitly paid on the basis of avoiding dominated choices.
An insurer makes money when people are making dominated choices. In the California example above, the dominated choice was likely an 80% AV Gold plan with a higher premium than the 87% or 94% CSR Silver plans. When someone chooses a dominated plan in this setting, the insurer sees both higher revenue and lower claims pay-out due to both the static effect of more cost-sharing and the dynamic effect of less utilization due to the additional cost-sharing. There is no insurer side incentive in the short run to call members to get them to switch to the superior, dominating plan.
Insurance agents whose business model is to get long term, repeat business are likely to attempt to get their clients into good for the client plans every year. Insurers who are looking at a market that has a 30% to 40% evaporation rate every year have a hard time seeing a positive case to improve plan choice which usually means a reduction in premium revenue and an increase in insurer side claims exposure. This only makes business sense if these actions keep profitable members from switching insurers or getting out of the entire line of business over several years. And that is one hell of a hard argument to make on a pragmatic basis in most cases.
State, federal and private exchange operators can use a combination of smarter defaults, non-trapping choice architecture and a lot of pokes to facilitate people to make good for them choices. The big challenge is that many people will make an initial choice and even with pokes and outreach from an exchange that is trying to keep choice quality high by getting people to make repeated active choices, there are few additional active choosers. Steps such as turning off automatic re-enrollment would force people to make an active choice but at the cost of massive enrollment losses.
Right now, there are few strong incentives to implement systems of active and passive choice architecture that aim to improve prolonged choice quality.
topclimber
You make it clear that there are few incentives on the supply side to maximize customer benefit. What about on the customer side? If these are significant rather than marginal, at some point wouldn’t we expect to see an industry built around publicizing and meeting the hidden demand?
Chris Johnson
It sounds very much like market mechanisms don’t work.
What would have to be done to cause them to work?
Meyerman
Thanks. I knew you had probably answered the question before, but I appreciate your patience in reanswering it. A very long time ago I was an insurance lawyer for a firm that dealt with huge industrial pollution claims. I thought that I was pretty good at reading policy documents, but interpreting health insurance coverage documents may be one of Turing’s unsolvable problems. Now as a teacher in Massachusetts, I get my insurance through the General Insurance Commission. While some people don’t like the choice restrictions, I feel like my interests in obtaining high AV are vaguely aligned with the interests of the GIC in keeping their costs contained and not too obviously screwing the policyholders. Maybe that is just wishful thinking?
Zelma
It’s weird how we make choices like this. When I had to decide on my Medicare supplement, I asked my cousin, a doctor’s office manager, which plans were best. Since she spent most of her days dealing with insurers, I felt she had the best insights into the insanity of the USA’s insurance “system.” She steered me well. I’ve thought of going to the trouble of seeing whether there is a cheaper option, but never wanted to bother. I guess that’s “stickiness” personified,
Chris Sherbak
Being a programmer type, everything looks like a code issue, but it sure does seem that our systems aren’t “being all they can be.” I could imagine a pop up (or hi light) on the UI suggesting that the default choice is ok, but these (big Green $ signs) are better choices for the following reason: larger coverage area (map icon), lower premium (<$ icon), lower deductible (<$ icon), more coverage extras (red plus Icon) … As noted, healthcare choice is h-lla hard for the experienced, why aren't we giving more calcuable info to the user???
Pooh
As someone buying on the exchange for the first time in a few weeks, are there any resources to figure out how to choose from the literally dozens of plans being thrown at me?