Enrollment in health care exchanges begins on Oct. 1, and for the first time, many customers will face a menu of dozens of plans. According to the Department of Health and Human Services, users of the exchanges will have on average 53 plan choices.
Proponents of the system say it will give consumers easy access to new information and insurance options. But some principles of behavioral economics suggest that even if the exchanges have a flawless rollout, consumers could have a bumpy road to choosing their insurance.
In part, that's because the new bevy of choices could overwhelm consumers, forcing them into bad insurance choices – or even no insurance at all, says one expert.
"Now people have options that they've never had before," says Douglas Hough, an associate scientist at Johns Hopkins School of Public Health who recently penned "Irrationality in Healthcare," a book about flawed decision-making in the health care marketplace. That creates "more tension and more potential for regret" as consumers fear making the wrong choice with every plan they decide not to pick, he adds. All of those choices could mean consumers make thoughtless choices, or even no choice at all, he says.
"Now instead of having two choices they have 25 choices. Individuals could just throw up their hands and say, 'I don't know which one to pick, and I'll probably pick the wrong one, so I'll just pick the name that I know, or I'll just pick the first one, or the cheapest one,'" says Hough. "Or they'll just throw up their hands and say, 'I won't pick any.'"
States have seen this firsthand. Massachusetts whittled down its plan options once it better understood what customers wanted.
"Actually when we first came on board in Massachusetts we had a lot more plans than we currently do," says Kate Bicego, consumer education and enrollment manager at Health Care for All, a non-profit helping to implement Massachusetts' insurance exchanges. Via focus groups and surveys, the organization found that consumers wanted a more limited selection of programs that met a certain level of standards and quality.
"What we've seen in Massachusetts is it's much easier for consumers, even if there is a lot of choice, to know and have the confidence that all these plans have been reviewed by a state agency to qualify," says Bicego.
Still, even that more-limited selection will leave some customers with dozens of options. One of the biggest choices that consumers will have to make is their level of coverage. Plans are separated into platinum, gold, silver, and bronze levels, in descending order of premium cost. Younger customers may also have the option of purchasing a less expensive "catastrophic" plan.
But this is another area in which consumers could make a massive misjudgment: people are often bad at assessing risk.
"People do not distinguish sufficiently between a 5 percent chance and 20 percent chance or, for that matter, between a 1 percent chance and a 5 percent chance. But they draw a big distinction between 1 percent and 0 percent," wrote Harvard economists Jeffrey Liebman and Richard Zeckhauser in a 2008 paper on behavioral economics and health care for the National Bureau of Economic Research.
In other words, consumers might underestimate their likelihood of getting a chronic condition that requires long-term care, even while they overestimate their likelihood of being hit by a car. By extension, that could mean a large population of young buyers who enroll in catastrophic insurance but underestimate their potential need for a more comprehensive plan, for example.
This is not to say that customers won't have some help along the way. One simplifying factor is that, though there may be a half dozen bronze or platinum plans for a consumer to consider, all of the plans within a given tier will offer the same level of care. Buyers of a bronze plan, for example, will generally spend more or less depending not on deductibles or coverage levels, but on which provider network they would like to be in.
In addition, some exchange websites will simplify the process, winnowing down plan options by asking for information on family size, income, and how much a customer is willing to pay.
Still, when patients finally do choose a plan, they will face one more major psychological hurdle, says Hough: paying the bills. People who get health insurance through their employers often never see the money that they use to pay for it; it simply is drawn from their paychecks. In the exchanges, however, many customers will more actively spend their money, which may trigger them to question why they're buying in the first place.
"You don't want them to have to write a check every month. That just brings out, 'I keep paying this health insurance, and I'm not getting anything from it,'" he says. The solution, Hough believes, is simple: auto-debit. "That's why if you're an insurance company, you want it to be a direct deposit, get as close to the payroll deduction as you can possibly get."