Behavioral Economics and the Affordable Care Act: What States Should Know As They Design Health Insurance Exchanges
Abstract
EXECUTIVE SUMMARY
One of the signature pieces of legislation passed under the Obama administration,
the Patient Protection and Affordable Care Act (hereafter referred to as “ACA”) is
a vast expansion of the healthcare system in the United States. Part of the law requires
that states set up a health insurance exchanges. These exchanges are a key element
of expanding coverage to those currently uninsured--particularly people who will be
purchasing insurance on their own--and will be responsible for implementing several
key aspects of the ACA.
The ACA will bring many changes starting January 1, 2014 to people who don’t currently
get their health coverage through their job. Part of the law requires that states
set up health insurance exchanges. These exchanges are a key element of expanding
coverage to those currently uninsured--particularly people who will be purchasing
insurance on their own since they work in a small business that doesn’t offer coverage
or are self-employed.
A health insurance exchange is a governing body that sets standards for what health
insurance plans are offered in a state. It is not itself an insurance company and
does not offer any insurance plans, rather it ensures that the insurance market in
a state is fair, transparent, competitive, and provides adequate benefits. It also
provides an online marketplace where people can log on and purchase insurance.
The way in which information is presented to people can significantly affect their
decisions. When presented with the complicated information comprising a health insurance
plan, people can struggle to process all that information. At times, they can be overwhelmed
by the decision and choose a sub-optimal insurance plan.
The ACA allows significant latitude in exchange design and research from the field
of behavioral economics should play a role. Challenging the traditional economic assumption
that humans are perfect utility-maximizing machines, behavioral economics melds psychology
and neo-classical economics to understand how people make decisions. By understanding
the places where people often struggle to make choices, policymakers can develop strategies
to mitigate those problems.
These recommendations are divided into two sections. The first two are relevant because
the state has opted out of designing its own health insurance exchange. The next three
are relevant to the design of an exchange and will be important if the state decides,
after several years of federal control, that it wants to reassert its authority over
its exchange. The first two deal with the responsibilities and rights of the state—both
retained and foregone. The next three pertain to behavioral economics and the user
interface of the exchange, a small but critical piece of the puzzle.
1. Enrollment will be key.
North Carolina has opted to let the federal government set up their health insurance
exchange (HIX). This means that the key responsibility retained by the state will
be in enrolling residents. This is critical as one of the key assumptions behind a
functioning market is full participation (hence the individual mandate).
2. North Carolina could set up a more effective HIX than the federal government.
The federal government is overwhelmed and struggling to set up exchanges around the
country. The state could be a more appropriate and responsive steward of this function.
3. Choice matters.
Limits on the number of choices a person must make can lead them to a better decision
(and one they feel better about). If, however, the limits are so prohibitive that
they lead to a monopoly, they would be a hindrance to efficiency.
4. Setting robust minimum standards is important.
Research on the Massachusetts HIX reveals that a majority of their enrollees choose
the lowest level of coverage. As such, setting minimum standards is critical, as it
is likely that a majority of enrollees will default to this option.
5. Issues of literacy and numeracy will affect consumers’ decisions.
Consumers often do not understand the definitions of terms used in health plans. Reworking
these definitions and then testing them for comprehensibility is a simple step that
can make a great difference in how people choose their insurance.
Type
Master's projectDepartment
The Sanford School of Public PolicyPermalink
https://hdl.handle.net/10161/6606Citation
Khan, Zarak (2013). Behavioral Economics and the Affordable Care Act: What States Should Know As They
Design Health Insurance Exchanges. Master's project, Duke University. Retrieved from https://hdl.handle.net/10161/6606.More Info
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