Sources of inertia in health plan choice

June 28, 2019

Topics: Quote of the Day

Presenter: Coleman Drake
Co-Authors: Conor Ryan; Bryan Dowd
8th Conference of the American Society of Health Economists, June 23-26, 2019

Inertia, the tendency to stay enrolled in a health plan from one year to the next, is a well-documented phenomenon in the health insurance literature. Handel and Kolstad (2015), among others, find that consumers are willing to pay hundreds of dollars per month to avoid switching health plans. However, it is less clear why consumers exhibit inertia. In this paper, we separately identify three separate reasons consumers may exhibit inertia: (1) tastes for continuity of care from in-network providers and insurers; (2) hassle costs; and (3) inattention resulting from choice frictions. While the literature has begun to explore these different sources of inertia, it has not incorporated them into a single model. We do so using a novel combination of Abaluck and Adams’s (2018) default-specific consideration model and a random parameters mixed logit model. This model allows us to separately examine inattention in plan choice and plan choice among attentive households. Our data are household-level 2014-2018 enrollment data from Covered California, California’s State-based Health Insurance Marketplace. Covered California is the nation’s largest Marketplace; it covers roughly 1.4 million enrollees each year. Preliminary results suggest that the mean household is willing to pay $77 per month to avoid the hassle of plan switching (conditional on being aware of plan characteristics) and $282 per month for continuity of care. Inattention increases total switching costs by an additional $150 per month. Tastes for continuity do not directly reduce consumer welfare – consumers may derive utility from staying with the same health care provider – but they could limit the benefits of competitive insurance markets. Choice frictions and hassle costs, in addition to having the same anti-competitive effects, reduce welfare through sub-optimal choices. Policymakers seeking to improve consumer welfare should therefore focus on reducing consumers’ choice frictions and hassle costs. Potential remedial policies include increasing outreach from insurance navigators and funding programs to educate consumers about the benefits of active health plan choice.

https://ashecon.confex.com…

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Comment:

By Don McCanne, M.D.

Because of its technical nature, this is a report that only an economist can love, but it does have an important lesson for single payer supporters.

Enrollees in health plans tend to be reluctant to change plans at the policy anniversary. This inertia can be due to: “(1) tastes for continuity of care from in-network providers and insurers; (2) hassle costs; and (3) inattention resulting from choice frictions.” Although hassle costs are an important factor, even more important is the reluctance to risk continuity of care that stems from changes in provider networks. This inertia can result in additional insurance costs of $509 per month ($77 + $282 + $150).

Every time that you hear the opponents of single payer Medicare for All say that people want to keep the insurance they have, you can feel confident that they don’t really want to pay an extra $509 per month. It has been said many times, it is not the insurance that they want to keep, it is their choice of health care professionals and institutions that they value highly.

The spin masters keep telling us that polls show that people do not want Medicare for All if it means being deprived of their choice of private insurance. But what if the polls asked this question instead: Would you give up the insurance you now have if the new public plan was guaranteed for life, always providing you with your choice of physicians and hospitals, providing all essential benefits, including drugs, dental, eye, mental health, and long term care, had no out-of-pocket costs whenever accessing health care, and was paid for by taxes that you could afford because they are based on your ability to pay instead of being based on the high costs of care? That was a long question so let me ask that again…

The point is we need to step up our efforts to be sure that the public understands what they actually could have if we were to enact and implement the single payer model of Medicare for All.

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Addendum:

By Don McCanne, M.D.

Although the comment states that inertia in changing health plans could result in additional insurance costs of $509 per month, that is unlikely since the amount was derived by adding three different thresholds for what a household would be willing to pay to avoid three specified reasons for inertia. In fact they should not be additive since exceeding any one of the three thresholds would likely overcome the inertia to change plans at the policy anniversary. But that does not change the fact that most people, if they were well informed on the single payer model of reform, would be much more satisfied with a new public plan that was “guaranteed for life, always providing you with your choice of physicians and hospitals, providing all essential benefits, including drugs, dental, eye, mental health, and long term care, had no out-of-pocket costs whenever accessing health care, and was paid for by taxes that you could afford because they are based on your ability to pay instead of being based on the high costs of care.”

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