Abstract
Consumers in private health insurance markets are highly inertial. The literature has repeatedly found consumers are willing to pay thousands of dollars to keep their health plan. However, the causes of inertia are not well understood, despite their importance in determining whether welfare can be improved by reducing inertia and which types of policies would be effective in doing so. Using administrative data from California's Health Insurance Marketplace, we separately identify three sources of inertia—tastes for provider continuity, inattention, and hassle costs—using two-stage models of inattention and health plan choice. We find that eliminating inattention and hassle costs would reduce repeated health plan choice by 53 percentage points and that interventions to reduce inattention and hassle costs are complements. Inattention and hassle costs cost consumers over a billion dollars in foregone consumer surplus in 2018, roughly $1,790 per household per year or half the annual premium paid by the median household, with inattention accounting for the largest source of forgone surplus. We conclude that interventions to reduce inertial plan choice should jointly focus on hassle costs and particularly inattention, but not tastes for provider continuity.
| Original language | English (US) |
|---|---|
| Article number | 104622 |
| Journal | Journal of Public Economics |
| Volume | 208 |
| DOIs | |
| State | Published - Apr 2022 |
Bibliographical note
Funding Information:We are grateful to the University of Pittsburgh Health Policy Institute and the Center for Growth and Opportunity at Utah State University for their support of this research. The opinions expressed in this manuscript do not reflect those of Covered California. We are thankful for helpful comments and discussion from Jason Abaluck, Mark Shepard, Ellen Montz, Adam Atherley, Roger Feldman, Eline van den Broek-Altenburg, Evan Saltzman, Paul Shafer, and Tsan-Yao Huang, as well as seminar participants at the 2018 Association of Public Policy Analysis Fall Research Meeting, the 2019 Annual Conference of the American Society of Health Economists, the 2019 American Health Econometrics Workshop, and the departments of economics at the University of Minnesota, the University of Pittsburgh, and the University of West Virginia.
Funding Information:
We are grateful to the University of Pittsburgh Health Policy Institute and the Center for Growth and Opportunity at Utah State University for their support of this research. The opinions expressed in this manuscript do not reflect those of Covered California. We are thankful for helpful comments and discussion from Jason Abaluck, Mark Shepard, Ellen Montz, Adam Atherley, Roger Feldman, Eline van den Broek-Altenburg, Evan Saltzman, Paul Shafer, and Tsan-Yao Huang, as well as seminar participants at the 2018 Association of Public Policy Analysis Fall Research Meeting, the 2019 Annual Conference of the American Society of Health Economists, the 2019 American Health Econometrics Workshop, and the departments of economics at the University of Minnesota, the University of Pittsburgh, and the University of West Virginia.
Publisher Copyright:
© 2022 Elsevier B.V.
Keywords
- Attention
- Health insurance
- Health insurance marketplace
- Inertia
- Switching costs
