Automatic Choice and Health Insurance Market Outcomes

Boosting enrollment and improving market outcomes are two major goals of health insurance reform. I study the role that a more automatic enrollment process can play towards these ends. Drawing on evidence from Massachusetts’ health insurance exchange, I find that a large share of people lose insurance because they fail to actively choose or switch to an available free plan. Using two natural experiments, I find that “automatic choice” policies that default assign or switch passive enrollees to a free plan substantially boost enrollment (by 50% for new enrollment and 12% for auto-switching). Passive new enrollees are much younger and healthier, with costs 43% below average, and they obtain more of their care from “charity care” sources like emergency rooms. Few consumers switch after initial assignment, so automatic choice shifts demand towards the plan(s) the regulator sets as the default. This motivates studying the default rule as an important market design tool. I study the tradeoffs among various regulatory objectives, including encouraging price competition (by assigning to low-price plans) and seeking to match consumers to plans with good features for their needs (e.g., better networks in their location).