The Value of Choice in Mandatory Health Insurance

Abstract

Giving consumers choice can improve welfare in principle. In this study, we explore the financial consequences of choice and information provision in the Swiss mandatory health insurance market that entails non-optimal options by design. This market is characterized by a significant redistribution of welfare due to the approximately 36 percent of the adult population participating in such non-optimal plans. We run a laboratory experiment in which we contrast choices under an increased information and a restricted choice setting to the control choice situation as it is currently observed in the market. We find that financial losses resulting from poor choice are economically meaningful and amount to 9.4 percent of total annual health costs and that decision quality cannot be easily improved by interventions. We suggest several policy changes in light of our findings.

Keywords: health insurance, policy, value of choice

JEL Classification: D81, D83, G22, I13