Affiliation:
1. Yale University and NBER
2. MIT and NBER
Abstract
Abstract
We study the impact of changing choice set size on the quality of choices in health insurance markets. Using novel data on enrolment and medical claims for school district employees in the state of Oregon, we document that the average employee could save $600 by switching to a lower cost plan. Structural modelling reveals large “choice inconsistencies” such as non-equalization of the dollar spent on premiums and out of pocket, and a novel form of “approximate inertia” where enrolees are excessively likely to switch to other plans that are close to the current plan on the plan design spreadsheet. Variation in the number of plan choices across districts and over time shows that enrolees make lower-cost choices when the choice set is smaller. We show that a curated restriction of choice set size improves choices more than the best available information intervention, partly because approximate inertia lowers gains from new information. We explicitly test and reject the assumption that this is because individuals choose worse from larger choice sets, or “choice overload”. Rather, we show that this feature arises from the fact that larger choice sets feature worse choices on average that are not offset by individual re-optimization.
Publisher
Oxford University Press (OUP)
Subject
Economics and Econometrics
Reference41 articles.
1. What Do Consumers Consider Before They Choose? Identification from Asymmetric Demand Responses;ABALUCK,,2017
2. Choice Inconsistencies Among the Elderly: Evidence from Plan Choice in the Medicare Part D Program;ABALUCK,,2009
3. Choice Inconsistencies among the Elderly: Evidence from Plan Choice in the Medicare Part D Program;ABALUCK,;American Economic Review,2011
4. Choice Inconsistencies among the Elderly: Evidence from Plan Choice in the Medicare Part D Program: Reply;ABALUCK,;American Economic Review,2016
5. Evolving Choice Inconsistencies in Choice of Prescription Drug Insurance;ABALUCK,;American Economic Review,2016
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