Can Consumers Make Affordable Care Affordable? The Value of Choice Architecture

6 Pages Posted: 11 Jul 2013 Last revised: 24 Jan 2014

Eric J. Johnson

Columbia Business School - Marketing

Ran Hassin

Hebrew University of Jerusalem

Tom Baker

University of Pennsylvania Law School

Allison T. Bajger

Columbia University - Department of Psychology

Galen Treuer

University of Miami

Date Written: July 9, 2013

Abstract

Tens of millions of people are currently choosing health coverage on a state or federal health insurance exchange as part of the Patient Protection and Affordable Care Act. We examine how well people make these choices, how well they think they do, and what can be done to improve these choices. We conducted 6 experiments asking people to choose the most cost-effective policy using websites modeled on current exchanges. Our results suggest there is significant room for improvement. Without interventions, respondents perform at near chance levels and show a significant bias, overweighting out-of-pocket expenses and deductibles. Financial incentives do not improve performance, and decision-makers do not realize that they are performing poorly. However, performance can be improved quite markedly by providing calculation aids, and by choosing a “smart” default. Implementing these psychologically based principles could save purchasers of policies and taxpayers approximately 10 billion dollars every year.

Keywords: Choice Architecture, healthcare, decision making, Affordable Care Act, Insurance Decisions

JEL Classification: I11, I18, J18

Suggested Citation

Johnson, Eric J. and Hassin, Ran and Baker, Tom and Bajger, Allison T. and Treuer, Galen, Can Consumers Make Affordable Care Affordable? The Value of Choice Architecture (July 9, 2013). U of Penn, Inst for Law & Econ Research Paper No. 13-28; Columbia Business School Research Paper No. 13-56. Available at SSRN: https://ssrn.com/abstract=2291598 or http://dx.doi.org/10.2139/ssrn.2291598

Eric J. Johnson (Contact Author)

Columbia Business School - Marketing ( email )

New York, NY 10027
United States

Ran Hassin

Hebrew University of Jerusalem ( email )

Mount Scopus
Jerusalem, IL 91905
Israel

Tom Baker

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-746-2185 (Phone)

HOME PAGE: http://www.law.upenn.edu/cf/faculty/thbaker/

Allison T. Bajger

Columbia University - Department of Psychology ( email )

406 Schermerhorn Hall
1190 Amsterdam Avenue, Mail Code 5501
New York, NY 10027
United States

Galen Treuer

University of Miami ( email )

Coral Gables, FL 33124
United States

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