Medicaid Program Choice and Participant Inertia

There is a growing literature examining the role of defaults and ensuing “inertia” in individual decision making and its impact on both individual and social welfare. Several papers have focused on choice inconsistencies in health plans. Here inertia can be defined as enrollees failing to leave their current health plan even though they have the ability to change plans, a better plan is available, and the cost of switching is low. In this paper we examine a population not previously studied, low income individuals choosing among Medicaid managed care plans. Using administrative Medicaid data for 2010-2013 from the Kentucky Medicaid program, we observe the extent to which enrollees initially opt out of their assigned plan and then how many opt out during the next open enrollment period. This data allows us to differentiate between inertia in plan choice and good matches between enrollee and plan generated by the auto-enrollment process. Preliminary results suggest that the auto assignment process employed by Kentucky Medicaid generates a considerable amount of plan inertia – more than half of the enrollees in our sample auto-assigned to what is arguably the worst of three plans remain enrolled in that plan even after the second open enrollment period. We then assess the implications for enrollee health care utilization, health outcomes, and program spending.