Choosing Health Insurance is So Complicated, 23% of Workers With Only Two Choices Picked the Worse One

By Trevor Collier, University of Dayton and Marlon L. Williams, University of Dayton

The Research Brief is a short take about interesting academic work.

The big idea

Almost a quarter of employees faced with the choice of two employer-sponsored health care plans picked the one that left them worse off financially, even though they offered the same non-cost benefits, according to new unpublished research we conducted. Using data from a large university in the Midwest that offered to subsidize one of two health care plans, we wanted to see how hard it is for people to make the better choice when given only two options. The plans were identical in every respect other than their costs. One plan had much higher premiums but lower out-of-pocket expenses such as deductibles and co-payments for the employee.

Our analysis found that 97% of the 2,300 employees would have been better off with the other plan, which had lower premiums but higher cost-sharing. Yet 23% chose the higher premium plan anyway. The average cost per year of choosing the wrong plan was over $2,000, according to our paper, which we plan to submit for publication soon.

What still isn’t known

We still don’t know how to help individuals make better health insurance choices.

Policymakers and health care practitioners have been trying to do so for years – such as by using algorithms to give consumers a “smart default” option that best fits their needs – but with little luck.

Ultimately, our research shows that simplifying the choice an individual must make alone will not eradicate consumer errors when picking insurance plans. We believe a better – though still unproven – possibility for improving choice is to provide better search and analysis tools to the employees so they can more easily make a more informed decision.

Helping people see that they could save perhaps over $2,000 a year seems like a good way to help them make a more-informed choice.The Conversation

Trevor Collier, Associate Professor of Economics, University of Dayton and Marlon L. Williams, Assistant Professor of Economics, University of Dayton

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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