How Product Standardization Affects Choice: Evidence from the Massachusetts Health Insurance Exchange

How Product Standardization Affects Choice: Evidence from the Massachusetts Health Insurance Exchange

Product Standardization on the Mass. HIX

Product Standardization on the Mass. HIX

Standardization of complex products is touted as improving consumer decisions and intensifying price competition, but evidence on standardization is limited. We examine a natural experiment: the standardization of health insurance plans on the Massachusetts Health Insurance Exchange.

Link to Full Working Paper: How Product Standardization Affects Choice: Evidence from the Massachusetts Health Insurance Exchange

Pre-standardization, firms had wide latitude to design plans. A regulatory change then required firms to standardize the cost-sharing parameters of plans and offer seven defined options; plans remained differentiated on network, brand, and price. Standardization led consumers on the HIX to choose more generous health insurance plans and led to substantial shifts in brands’ market shares.

We decompose the sources of this shift into three effects: price, product availability, and valuation. A discrete choice model shows that standardization changed the weights consumers attach to plan attributes (a valuation effect), increasing the salience of tier. The availability effect explains the bulk of the brand shifts. Standardization increased consumer welfare in our models, but firms captured some of the surplus by reoptimizing premiums. We use hypothetical choice experiments to replicate the effect of standardization and conduct alternative counterfactuals.

The Size of the LGBT Population and the Magnitude of Anti-Gay Sentiment are Substantially Underestimated

The Size of the LGBT Population and the Magnitude of Anti-Gay Sentiment are Substantially Underestimated

The Size of the LGBT Population and the Magnitude of Anti-Gay Sentiment are Substantially Underestimated

The Size of the LGBT Population and the Magnitude of Anti-Gay Sentiment are Substantially Underestimated

Measuring sexual orientation, behavior, and related opinions is difficult because responses are biased towards socially acceptable answers. We test whether measurements are biased even when responses are private and anonymous and use our results to identify sexuality-related norms and how they vary. We run an experiment on 2,516 U.S. participants. Participants were randomly assigned to either a “best practices method” that was computer-based and provides privacy and anonymity, or to a “veiled elicitation method” that further conceals individual responses. Answers in the veiled method preclude inference about any particular individual, but can be used to accurately estimate statistics about the population.

Comparing the two methods shows sexuality-related questions receive biased responses even under current best practices, and, for many questions, the bias is substantial. The veiled method increased self-reports of non-heterosexual identity by 65% (p<0.05) and same-sex sexual experiences by 59% (p<0.01). The veiled method also increased the rates of anti-gay sentiment. Respondents were 67% more likely to express disapproval of an openly gay manager at work (p<0.01) and 71% more likely to say it is okay to discriminate against lesbian, gay, or bisexual individuals (p<0.01). The results show non-heterosexuality and anti-gay sentiment are substantially underestimated in existing surveys, and the privacy afforded by current best practices is not always sufficient to eliminate bias. Finally, our results identify two social norms: it is perceived as socially undesirable both to be open about being gay, and to be unaccepting of gay individuals.

Paper available below:

Press Coverage:

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Invest-then-Harvest Pricing in Medicare Part D

Invest-then-Harvest Pricing in Medicare Part D

Individuals face switching frictions in many products, and insurance exchanges are no exception. In a paper forthcoming in the American Economic Journal: Economic Policy, I show that initial defaults have lasting effects in the Medicare Part D prescription drug insurance exchange. Since firms cannot commit to future prices, they should respond to inertia by raising prices on existing enrollees, while introducing cheaper alternative plans. I show that the market displays this pattern: older plans in this market are about 10% more expensive than comparable newly introduced plans.

For more:

Pricing Regulation and Imperfect Competition on the Massachusetts Health Insurance Exchange

Pricing Regulation and Imperfect Competition on the Massachusetts Health Insurance Exchange

Insurance markets often contain pricing regulation, such as community rating. I examine how pricing regulation interacts with imperfect competition in a recent working paper (http://www.nber.org/papers/w18089.pdf, joint with Amanda  Starc).

When markets are imperfectly competitive,  these regulations link prices for consumers that differ not only in costs, but also in preferences.  Tightening community rating regulation doesn’t merely move the price toward the average cost, since firms price to the marginal enrollee. As a result, community rating regulation can affect firm profits and market efficiency. We look at the Massachusetts Health Insurance Exchange (HIX), and show that younger individuals are much more price sensitive than older individuals.  Thus, insurers should charge higher markups on older individuals. Tighter community rating restrictions transfer money from younger consumers to older consumers, but also from firm profits to consumer surplus.

For more, see “Pricing Regulation and Imperfect Competition on the Massachusetts Health Insurance Exchange

An individual mandate, or a tax? How policy is articulated matters.

An individual mandate, or a tax? How policy is articulated matters.

Under the Affordable Care Act, people must buy health insurance  or pay a financial penalty. Framing that policy as a mandate to buy health insurance versus as a tax on not purchasing health insurance can matter. In a recent working paper (http://www.nber.org/papers/w18913, joint with Judd Kessler), a describe the results of a year-long experiment in which a series of participants reported their probability of purchasing health insurance either under a mandate or a financially equivalent tax.

In late 2011 and early 2012, articulating the policy as a mandate, rather than a financially equivalent tax, increased probability of insurance purchase by 10.6 percentage points — an effect comparable to a $1000 decrease in annual premiums. However, the controversy over the Affordable Care Act’s insurance mandate provision that changed the political discourse during the year 2012. We document the rise of this controversy. After the controversy, the mandate is no more effective than the tax.

For more, see:

An individual mandate, or a tax? How policy is articulated matters.

Under the Affordable Care Act, people must buy health insurance  or pay a financial penalty. Framing that policy as a mandate to buy health insurance versus as a tax on not purchasing health insurance can matter. In a recent working paper (http://www.nber.org/papers/w18913, joint with Judd Kessler), a describe the results of a year-long experiment in which a series of participants reported their probability of purchasing health insurance either under a mandate or a financially equivalent tax.

In late 2011 and early 2012, articulating the policy as a mandate, rather than a financially equivalent tax, increased probability of insurance purchase by 10.6 percentage points — an effect comparable to a $1000 decrease in annual premiums. However, the controversy over the Affordable Care Act’s insurance mandate provision that changed the political discourse during the year 2012. We document the rise of this controversy. After the controversy, the mandate is no more effective than the tax.

For more, see:

The Size of the LGBT Population and the Magnitude of Anti-Gay Sentiment are Substantially Underestimated

The Size of the LGBT Population and the Magnitude of Anti-Gay Sentiment are Substantially Underestimated

The Size of the LGBT Population and the Magnitude of Anti-Gay Sentiment are Substantially Underestimated

Measuring sexual orientation, behavior, and related opinions is difficult because responses are biased towards socially acceptable answers. We test whether measurements are biased even when responses are private and anonymous and use our results to identify sexuality-related norms and how they vary. We run an experiment on 2,516 U.S. participants. Participants were randomly assigned to either a “best practices method” that was computer-based and provides privacy and anonymity, or to a “veiled elicitation method” that further conceals individual responses. Answers in the veiled method preclude inference about any particular individual, but can be used to accurately estimate statistics about the population.

Comparing the two methods shows sexuality-related questions receive biased responses even under current best practices, and, for many questions, the bias is substantial. The veiled method increased self-reports of non-heterosexual identity by 65% (p<0.05) and same-sex sexual experiences by 59% (p<0.01). The veiled method also increased the rates of anti-gay sentiment. Respondents were 67% more likely to express disapproval of an openly gay manager at work (p<0.01) and 71% more likely to say it is okay to discriminate against lesbian, gay, or bisexual individuals (p<0.01). The results show non-heterosexuality and anti-gay sentiment are substantially underestimated in existing surveys, and the privacy afforded by current best practices is not always sufficient to eliminate bias. Finally, our results identify two social norms: it is perceived as socially undesirable both to be open about being gay, and to be unaccepting of gay individuals.

Paper available below:

Press Coverage:

Contact me about this study:

How Product Standardization Affects Choice: Evidence from the Massachusetts Health Insurance Exchange

Product Standardization on the Mass. HIX

Product Standardization on the Mass. HIX

Standardization of complex products is touted as improving consumer decisions and intensifying price competition, but evidence on standardization is limited. We examine a natural experiment: the standardization of health insurance plans on the Massachusetts Health Insurance Exchange.

Pre-standardization, firms had wide latitude to design plans. A regulatory change then required firms to standardize the cost-sharing parameters of plans and offer seven defined options; plans remained differentiated on network, brand, and price. Standardization led consumers on the HIX to choose more generous health insurance plans and led to substantial shifts in brands’ market shares.

We decompose the sources of this shift into three effects: price, product availability, and valuation. A discrete choice model shows that standardization changed the weights consumers attach to plan attributes (a valuation effect), increasing the salience of tier. The availability effect explains the bulk of the brand shifts. Standardization increased consumer welfare in our models, but firms captured some of the surplus by reoptimizing premiums. We use hypothetical choice experiments to replicate the effect of standardization and conduct alternative counterfactuals.

Link to Full Working Paper: How Product Standardization Affects Choice: Evidence from the Massachusetts Health Insurance Exchange