Complexity, Defaults and Health Insurance Choice

There is growing evidence of sub-optimal decision-making in health insurance plan choice. While complex choice environments and low-quality defaults have been pointed out as drivers of decision quality in health insurance markets, it is hard to disentangle their relative importance in a non-experimental setting. We conducted a hypothetical randomized experiment to investigate how complexity and defaults affects inertia and plan choice quality. Participants were randomly divided into 4 groups: simple versus complex choice set (greater number of options and attributes), and active choice versus default. Importantly, the effective choice set is constant across groups and plan options can be quality-ranked. Defaults and complexity decrease choice quality; however, these factors impact choices in different ways. Complexity decreases inertia, but individuals move to lower quality options. Defaults have no effect on inertia, but may anchor individuals to other similar (suboptimal) choices rather than assessing the full spectrum of options. Our results suggest that even though more options lead to more active plan shopping, consumers might end up worse off if some of these plans are low quality.