Coleman Drake, Conor Ryan and Bryan Dowd have a new paper in the Journal of Public Economics that attempts to figure out why 81% of people who re-enroll in their ACA plans stay in the same plan for the next year. They posit three types of plausible forms of inertia**:
- Preference for the same provider network
- Inattention to availability of options
- Hassle costs of switching between plans
What matters?
We find that eliminating inattention and hassle costs would reduce repeated health plan choice by 53 percentage points and that interventions to reduce inattention and hassle costs are complements. Inattention and hassle costs cost consumers over a billion dollars in foregone consumer surplus in 2018, roughly $1,790 per household per year or half the annual premium paid by the median household, with inattention accounting for the largest source of forgone surplus.
Why does this matter?
The ACA individual health insurance markets are messy choice environments. The California markets that this team (and others, myself included) are comparatively cleaner choice environments as benefit designs are standardized and game playing is limited but relative premiums change every year, both net of subsidy and gross, insurers enter and exit and life happens so risk preferences change. We would expect in a perfectly frictionless market that a lot of people are reasonably happy with their insurance in year 1 but would want to switch to something else in year 2. We really don’t see that a lot. This lack of movement means insurers compete hard to get people to sign up in the first year and then can go on cruise control with the objective of not overly pissing off people who are profitable to leave in the out years. That is not a particularly well functioning market.
The researchers found that taste for network continuity is barely relevant in their modeling. The two big factors that drive inertia are inattention and hassle costs. Inattention happens when people just don’t go and look. We know that automatic re-enrollment is really good at getting people to stay covered but at the same time automatic re-enrollment places people into objectively inferior dominated plans. Nudges and technocratic solutions such as re-working the automatic re-enrollment matching algorithms could significantly reduce the inattention costs. But the big problem (in my opinion) is that very few people actively like to look at their health insurance (I’m excluding myself from this statement). Inattention is a huge challenge.
The second challenge is the costs of switching insurance are high. Some of these costs of compliance costs which means setting up a new payment mechanism, and potentially re-running previously approved prior authorizations for medications and treatments. Some of these costs are information. How does Insurer X pay for Drug Z? Can I just make an appointment or do I need to get a referral? Some of these costs are psychological — does my new insurance work the way I think it should/does? For someone who has medical needs, knowing that their current system mostly, sort of kind of, works reduces risk compared to transitioning to a new system that promises to be better after a significant mental investment with uncertain and future outcomes.
The researchers argue that eliminating inattention and hassle costs would lead to three times as much switching behavior. This would dramatically change the structure of the marketplaces as insurers would no longer be competing mostly on attracting first year buyers who are likely buying mostly on price, but they would need to be competing on retention as well. I also think that this counterfactual universe would significantly stress current risk adjustment systems as there would be less aggressive coding and ineffectient choice may act as an anti-selection mechanism.
** DISCLOSURE: I write with Coleman all the time.
ronno2018
It just seems a shame our system is such a kludge. Life is stressful enough without having to make impenetrable choices about health insurance every year.
Are there any websites that run an algorithm to choose which plan? Heck they could take a commission or charge a fee to walk the user through a survey of their health needs and finances.
narya
If I had to shop the market, I would want to maintain my provider networks–and good luck figuring out whether your docs/hospital/etc. take YOUR specific plan. There are so many names with very slight tweaks, and sometimes docs take one but not another very similarly named plan. And, sometimes, good luck getting anyone to confirm that your providers ARE in the plan. That is, I think the information costs are VERY high. If I know that my docs take this plan, and I know how to get the care I need, then I don’t want to switch, especially if the risk I’m running is that someone is going to “yes! it’s covered!” and then I find out that no, no it’s not, and I’m stuck with that plan for a year.
I agree that if there were a relatively simple mechanism for making sure that the new plan covers the things I need covered, at a predictable cost, sure, switching would be an option. But I can’t help but think that insurers game the system in precisely this way. Even with my employer-sponsored coverage, there are two PPO plans, and my docs take one (the more expensive one) but not the other, and I had to dig a bit to find that out.
Roger Moore
@narya:
This is absolutely true. If I’m reading what David says correctly, this uses data from California, which takes steps to weed out confusingly similar plans, so this actually represents a best-case scenario. Most places, the information costs will be even higher. And, unfortunately, sticking with your plan doesn’t always mean you’ll have the same list of providers. Providers drop out for a variety of reasons, so inertia is no guarantee you’ll continue to get what you expect.
satby
I completely cop to inertia in my Medicare plan choice. This shouldn’t be so hard to figure out. It’s annoying enough and I’m healthy enough that I just don’t revisit it. It’s a completely ridiculous system for a first world nation.
NeenerNeener
My father stayed in the same Medicare Supplemental plan long after he should have, because he didn’t know there were cheaper options. It wasn’t until I went to work for his insurance company that he found out he could get better insurance for a whole lot less.
I’m planning on moving to a different, warmer state when I retire but I’m dreading having to research and get new insurance, on top of trying to find a new GP and new specialists….and a place to live.
ProfDamatu
These posts are so interesting to me; they really drive home how those of us in smaller markets are living in a different ACA world! As in, for 2022, in my area, we had two insurers to choose from, and only about 18 different plans across all metal tiers. The array of options is definitely confusing for those who are new to the process, but ultimately – you’re either going with Anthem Healthkeepers, which pretty much makes it impossible to access the major regional academic medical center (or at least they used to), or Optima, which allows access but generally costs more across the board.
I’m currently in the same plan (essentially) that I’ve had for the past couple of years, partly because almost all of my local providers are owned by the same parent company as the insurer (not quite a Kaiser situation, but you still don’t have to worry about out of network!), and partly because the insurer has a great track record of actually paying claims without balking. Which is worth a ton – to me, it’s worth the approximately $600 extra I pay in premiums per year.
Old Man Shadow
Things would be so much simpler if they just issued everyone a National Health card and that was that. Want services? Show your National Health card. No billing to you. No surprises. No yearly struggle to predict your health care needs or weigh which plan will cost more or save you more. Just a card you show and boom… health care.
lredd
Anecdata: we moved onto the exchange this month from employer insurance. One of the solid things many CA public agencies did was to align the group insurance plans with the exchange plans, so effectively we’re on the same plans we’ve been on for the last 25 years. Are they the cheapest options? Kinda don’t care – we’ve liked these plans, and we feel they are good value for money.
Our ‘wealth strategy’ to cop a TV commercial term has always been to minimize risk. It only takes one situation that you aren’t well insured (in the colloquial sense) against to fuck up the best investment/savings strategy. It’s less important that you’re in a 6% interest investment over a 5% than it is that you don’t get exposed to a lawsuit, miss a loophole in your insurance that means your cancer treatment isn’t covered, etc.
joel hanes
Comparative evaluation of competing insurance offerings is even more painful and murky than most people’s tax filings.
I fucking hate doing it.
David Anderson
@Old Man Shadow: 218-51-1-5
There probably is a 1, no way in hell is there a 218-51 or 5.
Organize and win that argument for at least half a generation