The Value of Choice in Mandatory Health Insurance

University of St. Gallen Working Papers on Finance No. 2021/04

40 Pages Posted: 16 Feb 2021 Last revised: 7 Jan 2022

See all articles by Christian Biener

Christian Biener

Institute of Insurance Economics, University of St. Gallen; University of St. Gallen - School of Finance

Lan Zou

University of St.Gallen

Date Written: January 5, 2022

Abstract

Giving consumers choice can improve welfare in principle. In this study, we explore choice optimality in a health insurance market that allows for variations in coverage but is standardized otherwise, theoretically implying optimal conditions for observing welfare improvements from choice. However, we find that as much as 49 percent of the adult population opts into non-welfare maximizing plans. In a hypothetical-choice survey experimental setting, we estimate treatment effects of increasing transparency through information provision and restricting choice on choice optimality. We find that decision quality cannot be improved meaningfully by our interventions, that pessimistic beliefs impair choice quality, and that non-optimal choice is economically relevant as it accounts for approximately 9.4 percent of total annual health costs. We suggest several policy changes in light of our findings.

Keywords: health insurance, policy, value of choice

JEL Classification: D81, D83, G22, I13

Suggested Citation

Biener, Christian and Zou, Lan, The Value of Choice in Mandatory Health Insurance (January 5, 2022). University of St. Gallen Working Papers on Finance No. 2021/04, Available at SSRN: https://ssrn.com/abstract=3778635 or http://dx.doi.org/10.2139/ssrn.3778635

Christian Biener

Institute of Insurance Economics, University of St. Gallen ( email )

Girtannerstrasse 6
St. Gallen, St. Gallen 9010
Switzerland

HOME PAGE: http://ivw.unisg.ch/cb

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Lan Zou (Contact Author)

University of St.Gallen ( email )

Varnbuelstr. 14
Saint Gallen, St. Gallen CH-9000
Switzerland

HOME PAGE: http://https://www.unisg.ch/en/personenverzeichnis/f638cfc7-2d4c-431d-976e-5754b9b379f7

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