How capable are people of making health insurance choices? Evidence from a hypothetical choice experiment

In this paper we investigate how well individuals can choose health plans in an exchange-like environment and which individual characteristics are related to quality of plan choice. While the Affordable Care Act (ACA) gives many people the responsibility of making health insurance choices in the insurance exchanges (or marketplaces), it is largely unknown how capable people are of making the choices.  We use a hypothetical choice experiment to examine whether individuals are able to identify a dominant health plan.

The experiment was implemented in the American Life Panel (ALP) in November 2013 with over 2,500 participants.  Participants were shown four different plans that were described by their monthly premium, annual deductible, annual out-of-pocket maximum, doctor visit copay, and generic medicine copay. All plans had the same premium, but one of the plans had a lower deductible, lower out-of-pocket maximum and copays at least as low as all other plans. Respondents saw these plans in random order and were asked which one of them they would choose. In addition to plan choice, we elicited information on socio-economic characteristics and financial literacy, as a measure of individual’s knowledge and skills to navigating complex financial products. Furthermore, we combine the data from this survey with measures of respondents’ knowledge about the ACA and about health insurance in general elicited for the same respondents in September 2013 in a different ALP survey. We conduct multivariate regressions to link ability to choose to individual characteristics and the different measures of knowledge.

Preliminary results show that 85% of respondents choose the dominant plan, suggesting that the task was rather simple. Multivariate regressions reveal that nonwhite respondents and those with less knowledge about health insurance have a significantly lower probability to choose the dominant plan. Given that the task to identify the best plan was not difficult and there is heterogeneity in the quality of choice, policy may need to assist those with low knowledge about health insurance to make their choices in the new and complex marketplaces created under the ACA.