The Costs of Poor Health (Plan Choices) and Prescriptions for Reform

Saurabh Bhargava, George Loewenstein and Shlomo Benartzi
Behavioral Science and Policy
January 1, 2018

Evidence suggests that when confronted with a large menu of health plan choices, consumers may not select the most efficient (that is, the most cost-effective) option. In anticipation of such problems, the exchanges set up by the Affordable Care Act (ACA) were designed to help consumers navigate the complexity of plan choices. Yet little is known about the actual efficiency with which ACA enrollees select plans. We present an analysis of projected health spending and a series of hypothetical plan choice experiments to explore the financial consequences of inefficient choices among potential ACA enrollees, the likelihood of such inefficient choices, and the potential for improving efficiency with a more behaviorally informed choice architecture. Our findings indicate that choosing a plan incommensurate with one's expected health care needs would lead to significant overspending relative to the most cost-effective plan and that, despite attempts to design the exchanges so that they facilitate decision-making, a significant share of ACA enrollees may have made inefficient decisions. More promisingly, we find that although the metal labels used in the exchanges to organize plans (for example, Bronze and Silver) encourage choices that are no more efficient than those associated with generic plan labels (such as Plan A and Plan B), labels that more sensibly reflect the factors consumers ought to consider—for instance, labels that emphasize gradations in the need for health care—do lead to significant improvements in the efficiency of plan choices.

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