The Affordable Care Act (ACA) dramatically expanded the use of regulated marketplaces in health insurance, but consumers often fail to shop for plans during open enrollment periods. Typically these consumers are automatically reenrolled in their old plans, which potentially exposes them to unexpected increases in their insurance premiums and cost sharing. We conducted a randomized intervention to encourage enrollees in an ACA Marketplace to shop for plans. We tested the effect of letters and e-mails with personalized information about the savings on insurance premiums that they could realize from switching plans and the effect of generic communications that simply emphasized the possibility of saving. The personalized and generic messages both increased shopping on the Marketplace’s website by 23 percent, but neither type of message had a significant effect on plan switching. These findings show that simple “nudges” with even generic information can promote shopping in health insurance marketplaces, but whether they can lead to switching remains an open question.
New working paper:
Inferring Risk Perceptions and Preferences using Choice from Insurance Menus: Theory and Evidence (joint with Philipp Kircher, Johannes Spinnewijn, and Amanda Starc)
Demand for insurance can be driven by high risk aversion or high risk. We show how to separately identify risk preferences and risk types using only choices from menus of insurance plans. Our revealed preference approach does not rely on rational expectations, nor does it require access to claims data. We show what can be learned non-parametrically from variation in insurance plans, offered separately to random cross-sections or offered as part of the same menu to one cross-section. We prove that our approach allows for full identification in the textbook model with binary risks and extend our results to continuous risks. We illustrate our approach using the Massachusetts Health Insurance Exchange, where choices provide informative bounds on the type distributions, especially for risks, but do not allow us to reject homogeneity in preferences.
Measuring Consumer Valuation of Limited Provider Networks
Longer version: NBER Working Paper 20812. (Joint with Amanda Starc)
We measure provider coverage networks for plans on the Massachusetts health insurance exchange using a two measures: consumer surplus from a hospital demand system and the fraction of population hospital admissions that would be covered by the network. The two measures are highly correlated, and show a wide range of networks available to consumers. We then estimate consumer willingness-to-pay for network breadth, which varies by age. 60-year-olds value the broadest network approximately $1200-1400/year more than the narrowest network, while 30-year-olds value it about half as much. Consumers place additional value on star hospitals, and there is significant geographic heterogeneity in the value of network breadth.
I have two papers examining limited memory. Most recently:
On the Interaction of Memory and Procrastination: Implications for Reminders
Abstract: I examine the interaction between present-bias and limited memory. Individuals in the model must choose when and whether to complete a task, but may forget or procrastinate. Present-bias expands the effect of memory: it induces delay and limits take-up of reminders. Cheap reminder technology can bound the cost of limited memory for time-consistent individuals but not for present-biased individuals, who procrastinate on setting up reminders. Moreover, while improving memory increases welfare for time-consistent individuals, it may harm present-biased individuals because limited memory can function as a commitment device. Thus, present-biased individuals may be better off with reminders that are unanticipated. Finally, I show how to optimally time the delivery of reminders to present-biased individuals.
This paper built on my previous work on memory, showing that people are overconfidence about the probability they will remember:
Forgetting We Forget: Overconfidence and Memory
Abstract: Do individuals have unbiased beliefs, or are they over- or underconfident? Overconfident individuals may fail to prepare optimally for the future, and economists who infer preferences from behavior under the assumption of unbiased beliefs will make mistaken inferences. This paper documents overconfidence in a new domain, prospective memory, using an experimental design that is more robust to potential confounds than previous research. Subjects chose between smaller automatic payments and larger payments they had to remember to claim at a six-month delay. In a large sample of college and MBA students at two different universities, subjects make choices that imply a forecast of a 76% claim rate, but only 53% of subjects actually claimed the payment.
Dynamic defaults for recurring purchases determine what happens to consumers enrolled in a product or service who take no action at a decision point. Consumers may face automatic renewal, automatic switching, or non-purchase defaults. Privately optimal dynamic defaults depend on the contributions of adjustment costs versus psychological factors leading to inaction: both produce inertia under renewal defaults, but differ under non-renewal defaults. Defaults have equilibrium effects on pricing by changing the elasticity of repeat demand. Socially optimal defaults depend on firms’ pricing responses as well; more elastic repeat demand restrains price increases on repeat customers and can reduce inefficient switching.
See also discussion in The Incidental Economist.
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.
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:
- The Size of the LGBT Population and the Magnitude of Anti-Gay Sentiment are Substantially Underestimated, with Katherine B. Coffman and Lucas C. Coffman. Forthcoming, Management Science
- Pew Research Center Fact Tank: “Study: Polls may underestimate anti-gay sentiment and size of gay, lesbian population.” October 9, 2013.
- The Atlantic: “Surveys Dramatically Underestimate Homophobia“. October 9,2013
- Time: “Social Attitudes About Sexual Orientation May Not Be As Open As Previously Thought“. October 7, 2013.
- LA Times: “Gay population – and anti-gay feelings – may be underestimated“. Oct 11, 2013
- The Incidental Economist: “How many LGBT people are there?“. Oct 11, 2013
- Slate.com: “How Do Americans Really Feel About Gays?“. Oct 11, 2013
- The Advocate: “LGBT Population May Be Underreported in Polls“. Oct 12, 2013.
- ThinkProgress: “Study: Stigma Limits Self-Disclosure Of Gay Identities And Anti-Gay Attitudes“. Oct. 10, 2013.
- Take Two (KPCC Public Radio). “Study shows anti-gay sentiment is underestimated.” Oct 16, 2013.
- Boston Globe: “Ideas“. Oct 21, 2013.
- Psychology Today: “Homosexuality Is More Prevalent Than We Might Have Thought.” Oct 17, 2013.
Contact me about this study:
Individuals face switching frictions in many products, and insurance exchanges are no exception. In a paper published 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.
- See the paper: “Consumer Inertia and Firm Pricing in the Medicare Part D Prescription Drug Insurance Exchange“, American Economic Journal: Economic Policy 2014.
- See the working paper at www.nber.org/papers/w18359
- See a discussion in the Kaiser Health News blog
Insurance markets often contain pricing regulation, such as community rating. I examine how pricing regulation interacts with imperfect competition.
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.
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 Ericson and Kessler (JEBO 2016), we 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:
- Our NBER Working Paper 18913, “The Articulation Effect of Government Policy: Health Insurance Mandates Versus Taxes”
- Coverage in the Washington Post’s Wonkblog: “It’s a mandate! It’s a tax!“