Consumer Choice and Learning in Private Insurance Markets: Evidence from the ACA Marketplaces

We examine consumer plan choice and learning in 2015 and 2016 in the Federally-facilitated Marketplaces (FFM) for health insurance established by the Affordable Care Act (ACA). The FFM offers a useful context for studying choice in private insurance markets. Plans offered in the FFM are displayed in an online “exchange” and are required to meet standards regarding coverage, premiums, benefits, and cost-sharing. These requirements as well as the design of the exchange is intended to facilitate consumer shopping and there is evidence that consumers actively shop and switch plans in the FFM at higher rates than in the market for employer-sponsored insurance. Understanding the dynamics of consumer choice in this setting is important given that the Marketplaces are still relatively new markets for consumers and insurers and that the regulations described above were intended to standardize and improve the options for consumers getting insurance through the non-group market. A deeper understanding of consumer decision-making is fundamental to improving the design of insurance markets as well as ensuring that the individual insurance market is attractive to insurers.

A combination of public data on plans available at the county level and associated benefit design features and administrative individual-level panel data on FFM enrollment allows us to identify each enrollee’s choice set and their chosen plan as well as to see how their choices evolved over time. Further, these data allow us to calculate the actual premiums, deductibles, and max OOP levels that consumers faced, taking into account cost-sharing reductions and other subsidies. We characterize enrollees’ choice sets and estimate discrete choice models of individual-level plan choice that account for plan characteristics and interactions with individual characteristics. These choice models allow us to assess the value that consumers place on four benefit design features: premium, deductible, maximum out-of-pocket (OOP), and size of the physician network. We use our estimates to calculate individuals’ willingness-to-pay (WTP) for benefits such as lower deductibles and broader provider networks and to variations in WTP across different populations. Finally, we examine choices by consumer year of entry to assess how WTP changes over time, which may reflect consumer learning.

We find that consumers valued each plan benefit design feature when making their choice and were willing to pay substantial amounts to lower deductibles and max OOP levels and to have access to a broader physician network. Specifically, 2016 Marketplace enrollees were willing to pay $257 annually to reduce their deductible by $1,000, $108 to reduce their max OOP by $1,000, and $151 annually to increase the network penetration of their plan by 25 percentage points. Willingness-to-pay for all features increased with age and was generally higher for women than men; WTP for greater network breadth also increased with income. Further, WTP for bigger networks increased monotonically over time for individuals who enrolled in Marketplace plans for multiple years, suggesting that consumers learned over time. These results are also consistent with the introduction of provider search tools and other network information onto the Marketplace website in 2015 and 2016.