Study Shows Poor Decisions Will Increase Due to High Number of Insurance Choices

Come October 1, poor decisions may be common on the insurance marketplaces, at least according to a new study by the University of Pennsylvania.

“Can Consumers Make Affordable Care Affordable? The Value of Choice Architecture” was held in the Institute of Law and Economics at UP, and they researchers found both the design of the marketplace, as well as the relevant education present, each made a large difference in the general quality of decision making when dealing with insurance purchasing.

The features that most affect the public marketplaces have is a question that can not be answered up until the start of October. That said, Healthcare.gov is currently working with Kaiser Family Foundation for a subsidy calculator.

The study made the subjects choose between slates of four and eight varying plans. That number is considered much fewer than the expected amount offered in the marketplace when the October 1 deadline rolls around.

“Users of these exchanges will be largely unfamiliar with selecting health insurance and will not be highly educated (77% will have a high school diploma or less),” the study said. But without the aid of cost-calculators, the subjects spent nearly 42% of the time with four choices, and 21% of the time with eight options.

“Without any intervention, respondents perform at near chance levels and show a significant bias, overweighing out-of-pocket costs and deductibles,“ the study said. ”Financial incentives do not improve performance, and decision-makers do not realize that they are performing badly.“

If consumers are not able to identify cost-efficient plans, marketplaces will have trouble producing pressures for competition incentive.

“At the individual level, unaided choice is expensive: It represents about 1 percent of the income of the proposed median buyers’ household income,” the study says. “But, in the aggregate, an error of $456 represents staggering sums: If 20 million individuals make choices using the exchanges, a figure suggested by Congressional Budget Office estimates, unaided choice represents a cost to consumers of $9.12 billion dollars each year. Since almost all of these policies are subsidized through tax credits, good choice architecture would produce substantial savings to the federal budget and taxpayers.”

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