Over at Blue Sky, Don Moynihan has a good thread on how the government can reduce administrative burdens for social service uptake. The work that he and Dr. Herd have done on admin burden has been a key framing feature of my thinking for the past five years. Cash costs are real, but non-cash costs are just as real and in many cases, just as important. He highlights a key element in this post:
Lesson 3: Make it automatic
Informational nudges help at the margins, but to really reduce frictions and increase take-up, automating coverage is the way to go.
The federal government is claiming credit for pushing ex parte renewal rates up for Medicaid.— Don Moynihan (@donmoyn.bsky.social) Aug 21, 2024 at 9:42 AM
In the context of the ACA, reducing administrative burden by informational nudges is helpful. There have been a series of papers using Covered California data and randomized control trials that show that adding information and reminders are cheap and cost-effective. But those nudges are good for 1% here, and 2% there.
Some of my research has looked at dominated plan choice where people choose plans that are more expensive with more cost-sharing than plans offered by the same insurer on the same network. This is an expensive mistake worth $400 to $500 a year in extra premium and potentially thousands of dollars of excessive cost-sharing exposure. Nudges in California were good at moving a couple percentage points of people out of dominated plans. That same paper examined an automatic crosswalk that changed the default to non-dominated plans.
The automatic crosswalk intervention resulted in an 83.0-percentage-point (822 percent) increase in CSR silver plan take-up compared with the control group, with more than 90 percent of households enrolled in CSR silver plans.
My colleagues and I proposed and analyzed a hypothetical re-enrollment algorithm similar in spirit to the California algorithm as well as the 2024 CMS algorithm. In our analysis, similar to California, we found substantial increases in people having zero premium and low deductible insurance. We estimated that these switches could be beneficial to 4% to 6% of all ACA enrollees.
The common thread in these two proposals is that it placed the burden of complexity on the party that is better resourced to handle complexity. The state or CMS has both the expertise to understand the insurance markets and the ability to learn and internalize its learning by doing over millions of opportunities. Individual buyers don’t readily have that capability.
We should try, as much as possible, to put burdens on the parties that have the capacity to absorb and usually automate the process.
Balconesfault
Of course, for quite a number of states, the friction is a feature, not a flaw.
David Anderson
@Balconesfault: Completely agreed… and the justification will lean into the economic literature of ordeal costs and targeting efficiencies.
AM in NC
Yes! It is insane that we are all supposed to act as informed insurance brokers every year. My husband and I have Ph.D.s so we are used to reading and processing complex information; we used a broker to help us navigate buying insurance that covered us and our employees when we owned our business, so we are probably better able to run this gantlet than the average American. And STILL it feels like a guessing game to us. We think we made the best choice for our circumstances as we think they’ll be this year, but who knows?
Ruckus
@AM in NC:
Effectively it is a game.
But it’s most often not the buyer who is actually playing the game.
It is the insurance companies – I’d imagine not all of them, and I’m likely wrong – that are playing the game.
The point for some is to make it complicated enough that it actually takes someone with the proper skills to actually make reasonable decisions. What you are actually buying, how much you are paying, and what you are getting for your money. IOW it is the insurance business. It can be understood of course but it is as often just a lot of words that don’t mean what the consumer thinks they do, presented as getting Y for X dollars. I owned my own manufacturing company and bought several types of insurance and sometimes it was just “Tell me how big a check to write.” I had a good broker who could/would discuss and break it down for me. Even though I was spending money that I had to spend, often it was just easier to sign the check and be done with it. Otherwise I spent even more money – as time is of course money.
dnfree
Thank you for continuing to share your thoughts on this. It’s an extremely important issue that many people don’t understand.
TF79
Reminds me of some of the work on opt-in/opt-out for 401k plans and how way fewer people left money on the table when it was opt-out
Fair Economist
I love that we get a free graduate course in health insurance economics from a degreed professor here!
TooTallTom
I have an economic cost/benefit question for our distinguished professor. There are now multiple (pricey) weight loss medications in the marketplace, but they are rarely covered by insurance. Since weight loss helps overall wellness, and prevents onset of heart disease, diabetes, etc, when do you think the insurance industry will come around to covering these medications?
Lobo
Here is a legislative proposal. Have a consumer group or some similar party who has the best interests of the consumer in mind create a model insurance policy with costing, basically a psuedo-public option, and demand that all insurance has to meet or beat it and explain why any differences are better and then state the cost. That may reduce some administrative complexity. You have a trustworthy starting point and reference. Your thoughts?
rodwell
Currently, I am covered by the NJ state plan (NJCovered). Because I have been reading your posts for many years. I choose a “Silver” plan that is very affordable with income level. Both medical and dental for approximately $250 per month. They do have about 15 plans. Is that an optimum number based on your research?
Fraud Guy
Unfortunately, the corporate push is to have customers provide their own customer service at checkout, websites, IVR…externalize the costs at all costs.
David Anderson
@rodwell: I’ve not seen what the optimal number is for working age adults. The McWilliams paper on Medicare Advantage found choice quality declined when there were more than 30 choices for the over 65 population with substantial variation by the level of cognitive function.
PERSONALLY SPEAKING — 1 choice is too few and 100 is too many IN MY OPINION WITHOUT GOOD EVIDENCE — but I don’t know where the optimal number really lies for working age adults.
https://pubmed.ncbi.nlm.nih.gov/21852301/
David Anderson
@Lobo: The big problem I have with this is who are you designing the standardized plan for?
The median American has, for a given level of actuarial value and premium, a strong preference for no deductible, high MOOP and co-pays/coinsurance for everything plans because they are unlikely to use many services in a year.
The person who is at the median dollar is in the 95th percentile of spending in the population (https://meps.ahrq.gov/data_files/publications/st540/stat540.shtml) they really want an all deductible, low MOOP plan holding premium and AV constant.
So what does “standard” serve?
David Anderson
@TooTallTom: Good question for tomorrow — the TLDR is time horizons and abandonment issues abound