November 03, 2015
Austin Frakt had an interesting piece discussing people’s abilities to select the lowest cost health care plan to meet their needs. He cites a number of studies that indicate people often make mistakes. For example, they frequently will pay way too much for plans with low deductibles and they fail to switch drug plans, even when they would have clear savings. (These behaviors are not necessarily irrational. If people know that a high deductible will discourage them from getting necessary care, they may opt for a plan that removes this obstacle. Also, filling out forms can be an ordeal for many people. If a person has familiarized themselves with one company’s forms, they may not want to switch companies and have to deal with a new set of forms, even if it could save them money.)
Anyhow, there is an interesting implication of this discussion that is not explored in the piece. If we assume that insurers have some target profit rate, then they obtain this rate from the average profit they earn from their customers. If insurers can make a larger than average profit from people who make bad choices, for example by paying too much to reduce their deductible, then they can make a lower than average profit from people who can effectively navigate through the choices offered.
This means that presenting a range of choices is a good way to redistribute from the people who are not very good at analyzing choices to those who are. The latter group tends to do things like write about insurance systems and advise politicians on these issues. This could help explain the preference by our politicians for systems involving choice over more simple options, like universal Medicare.
Comments