Nudges in Healthcare Insurance take-up

JPal Poverty Lab has a recent literature review on the effect of nudges on health insurance take-up. Nudges are small changes to information, choice structures and other things that are attempts to lower administrative burdens without changing the underlying economic or legal structures. I study nudges. Several co-authors and I just submitted a grant on nudges. One of my papers was enacted into federal policy to shift the default plan for some people to get them out of strict domination. That was a nudge paper. It will lead to a few hundred thousand people seeing a different choice architecture.

However, nudges are limited.

A review of eleven randomized evaluations conducted between 2001 and 2019 that assessed the impact of various nudges aimed at increasing health insurance take-up among adults found these interventions to have a small but notable impact—both on encouraging individuals to take-up health insurance or to switch to plans with lower premiums and expected lower out-of-pocket costs to the individual.

These effects are bigger when the money is bigger:

To reduce potential choice error, consumers who were eligible for plans with higher subsidies but were enrolled in other plans were sent information regarding the higher-subsidy plans [9]. This information increased plan switching by 2 to 4 percentage points, for email-only and mail-plus-email interventions respectively (an 11 to 22 percent increase from a baseline of 18 percent). Letter recipients saved, on average, roughly $65 per year. Plan switchers saved, on average, $84 per month in premiums, or over $1000 annually, and $56 per month in reduced out-of-pocket expenses, or over $670 annually….

Choice architecture is worth doing, and it is worth doing right. Informational nudges are worth doing and worth doing right. Reminders are worth doing and worth doing right. However, they have modest effects in a complex choice space, so we should think about the choice space as a first best option and then think about nudges as second best options.