Health Insurance Literacy and Health Insurance Choices: Evidence from Affordable Care Act Navigator Programs

Classic models of adverse selection assume that patients understand the generosity of health insurance plans before they select one. This assumption is, however, at odds with recent empirical findings. A majority of Americans are not comfortable with one or more key health insurance terms such as deductible, premium, and network, which would increase their uncertainty about their potential out-of-pocket payments for care under different insurance plans. Billions of dollars of federal funding were spent on programs to help people with low health insurance literacy shop for insurance after the Affordable Care Act (hereafter, navigator programs). However, little is known about the implications for health insurance markets. In particular, these programs could exacerbate adverse selection if they mainly helped high-cost patients self-select into insurance. Using data on the differential patterns of funding of navigator programs across states during 2010-2015, I show that generous navigator programs were associated with increased insurance uptake but similar or decreased spending per insured patient, indicating that navigator programs - if anything - stabilized markets by adding lower-cost patients. To explain this lack of adverse selection, I use another national dataset to show that patients with low health insurance literacy experienced two opposing effects: poorer health but also higher potential barriers to care.