Open Enrollment for the ACA ends next Tuesday for people who use Healthcare.gov There are a lot of choices to make. Margot Sanger-Katz at the New York Times has a great article on the challenges of choice for insurance products:
When Paul Krugman, the Nobel-winning economist and a New York Times columnist, started a teaching job at the City University of New York, he had a choice between one union health plan at The Times and an array of university options, “which I found incomprehensible,” he said in an email.
“I asked H.R. at CUNY if they could explain the differences; they said no. So I went with The Times, precisely because it didn’t require that I make a choice!”
In Seminole County, Fla., right now, Obamacare customers can choose among 174 different health plans…
But it turns out in real life most people are terrible at picking the health plan that is right for them. Health insurance is a complicated financial product, and study after study has shown that people routinely pick bad plans, even choosing options that leave them worse off financially in every possible scenario. And, because people are so bad at choosing good plans, the market often sends weird signals to insurance companies, encouraging them to offer more of the wrong plans instead of the right ones.
Choice is tough. It is tough for me. I was speaking with another reporter who was putting together a similar story and gave the following quote:
“This is what I do for a living and what I do for fun, but if I had to look at 50 choices, I probably wouldn’t make a catastrophic choice but I wouldn’t make the optimal choice either….And if I’m not making the optimal choice, I guarantee you my little sister isn’t making an optimal choice.”
When you go look at your options, you have plenty of decision rules to potentially follow. You should seek help if possible. And then you should adopt one of two strategies:
There is satisficing. This is a “good enough” solution. With satisficing, the chooser sets up a list of minimal acceptable criteria. And once they find something that meets that acceptable criteria, they stop searching. This is, at least, a cousin to the “80%” solution Lobo mentions above. Satisficing acknowledges search and information costs and that these costs can be high for minimal gain. An optimal choice is possible, but depending on the size of the choice menu, it could be unlikely. But good enough is often good enough as we all know from the pre-COVID days of looking for a parking space in the mall parking lot at 2:00pm on the Saturday before Christmas.
Minimizing-maximum regret is another decision choice strategy. In mini-max, the objective is not to choose the best plan. The objective is to pick out the least bad outcome. This is a way of dealing with uncertainty. In the insurance context, this probably leads to higher premiums in the pursuit of lower out of pocket maximums, but that is a reasonable trade-off. Mini-max when applied to a large choice menu is very unlikely to pick the optimal plan. Instead, it is a trade to get the least downside at the cost of giving up a lot of upside.
Uncurated choice is challenging. Accepting that optimal choice is unlikely except by chance can be liberating.
marklar
Thanks for this post, David. The next time I teach a course on judgment and decision-making, I’ll likely make use of it as an accessible introduction to satisficing and the ‘tyranny of too much choice’!
P.S. your posts have been really helpful in guiding my daughter’s choice of the marketplace in Kentucky. Thanks!
taumaturgo
The idea that more choices are good for the consumer is a canard that allows capitalists to continuously offer a constellation of choices that in the end, a) hurt not help the consumer and b) accelerate the upward flow of wealth and capital to the top. This should be the number one reason to eliminate treating healthcare as a commodity.
JCJ
Of course there are other factors besides premiums and out of pocket costs. I checked the marketplace for my daughter this year to see what else there might be besides her automatically renewed plan. One that looked OK was from an insurer that can be difficult to get prior authorization for procedures. I will get the authorization for the procedure for my patients, but they have in the past stated that they have up to 15 business days to issue the authorization. Since my patients are getting authorized for cancer treatments that has caused unnecessary anxiety. They have been better lately, but I am still wary of them. She stayed with her previous plan.
Just Chuck
I worked on a website for a while that took in household info, prescriptions, specific desired services if any, and spat out a prioritized list of ACA plans with estimated out-of-pocket costs. Pretty nifty, but since they haven’t sent me or my shop any work since the summer, I suspect they’re no longer around or at least not doing consumer services. Too bad, I was having fun with the tech (typescript on aws lambda).
And insert my usual disgusted rant about insurance companies doing all this on purpose.
Yarrow
Thank you, David. Your posts are invaluable. One thing I’ve learned from you that has been key to picking a plan is to go with Silver to get subsidies. I’ve advised other people on that and it has helped cut down on the vast array of choices.
Appreciate your posts here so much. Thank you for continuing to post here and for the high quality, informative, and accessible nature of your posts.
JanieM
@Just Chuck:
IMO (and I wonder what David thinks), it’s not just the insurance companies, it’s Congress as well, and probably all the financial stakeholders of this insane, impossible system. The complexity is part of the point, to enhance the powerlessness of the ordinary person to even navigate the system, much less change it.
Lawrence Schuman
I find it difficult to accept that Paul Krugman was genuinely confounded by his insurance choices. I think it much more likely that he is well off, healthy, and it doesn’t much matter which one he picked. And it wasn’t worth his time to look into it.
My last real job was with a large global corporation. And they had great insurance choices. And I always bought the platinum plan for my family. If you looked at the paycheck cost and the point of service costs all the plans were about the same. With the platinum plan there was much, much less pain in the ass at point of service. And we knew we were going to use it. Not sickly people, but middle aged and with a kid. We use health services. And if there was an unexpected surgery, we had a couple, $250 copay and that’s done. Point of service costs keep people away from using the healthcare they bought. Insurance companies know this.
Jess
Thank you, David! This is so helpful…did you write it for me?
Villago Delenda Est
Choice is especially tough when in order to make an informed one, it seems like getting a degree in the subject is required.
Villago Delenda Est
@taumaturgo: THIS. Our health care paradigm is like this so parasites can profit.
Kent
We don’t have to deal with these marketplaces because my wife’s employer provides coverage. They very much incentivize the use of High Deductible HSA plans which we are using and it is working out financially over the other option.
Essentially our choice is a “Cadillac” no-deductible family option for about $500/mo. premiums. Or a $4,000 family deductible HSA option for zero premium in which they also contribute $2,000/yr into the HSA account. Seemed a no-brainer to go the HSA route. Especially since routine annual preventative care is covered either way.
Barbara
I helped a colleague walk through Medicare Advantage selection tools last week. I would add a few thoughts. It helps to categorize your needs: frequent consumer of medical care, episodic but basically random interactions, or just mostly worried about catastrophic coverage.
To approach this rationally, try to add up your health care interactions for this year and think if there is any reason why they would be lower next year. If not, assume that you will spend at least that much or possibly more. People tend to underestimate their medical expenses even when they have clear proof to the contrary.
As I explained to my colleague, a zero (or lowest) premium plan can make sense if you have had minimal interactions with health care system, but other financial attributes like the deductible or out of pocket maximum are much more meaningful if you are likely to incur medical expenses. So, if your out of pocket expenses have not been even close to the maximum out of pocket, and especially if they have been less or not much higher than your deductible, then a low premium might really be the best option.
If you do use a lot of medical care, you should identify what matters to you — access to a specific hospital or doctor or brand name drug — and rule out the plans that don’t give you those things. For instance, my colleague’s mother lived close to two hospitals that were only in the networks of a few plans. That narrowed down the choice considerably (from 36 to five).
Another Scott
@Barbara: Smart. Thanks.
But as we all know, in a sensible world people wouldn’t have to do all this figuring. There are too many chances for disaster (“I was fine last year and picked a plan for this year based on that, but the Mrs. and I got COVID and then got hit by a bus and then …, and now we’re living off GoFundMes…”).
It’ll be very interesting to see what Biden and Becerra and sensible Congresscritters come up with to improve the systems.
Cheers,
Scott.
JAFD
A couple of decades back, when my father was still around, he said “I got this new car at XYZ Motors because they have a ‘special service’ deal – lube and oil changes are free as long as you own the car. Great thing about it is, say, if you hit 40,000 miles in February when the Xmas bills are due, you don’t have to put it off and probably forget about it…”
Maybe my old man was right ;-)
PS – Wish Claire and family a Happy Hannukah from us !
Martin
I cannot recommend this video enough about how people look at choices.
I’ve watched it at least 30 times with various people, many at work, about how choice is usually an illusion. It speaks directly to the points raised here.
My mom is a volunteer who helps people choose their Medicare Part D plans and even with her CMS provided tools which the public doesn’t have access to, she (with decades of experience working for health insurers) is often surprised at the results which are cheapest for her clients because they are often completely non-intuitive. And that makes a certain sense – the insurers don’t want to steer you toward the plan that is cheapest for you, they want to steer you to the plan that is cheapest for them, or at least one that doesn’t create a risk pool that breaks their model. And that’s really what my mom is doing – often steering patients to plans that look expensive, but because they have a particular cocktail of meds that perfectly aligns with what a given plan has discounted, they thread the needle through the actuaries and the CMS folks who are rating the plans. And that’s a good service that she offers, but its an adversarial one that she is on the losing side of because it’s entirely about shaping the risk pool in ways designed to break the plans, which in turn will require the plan be tweaked next year to compensate, requiring all of her clients to jump to a different plan, and the constant plan shifting is terrible for everyone – for insurers who lose the certainty of returning policyholders, for patients who now need to go to different pharmacies, do different paperwork etc. The only winner in this system are the administrative staff in the middle employed to hold it all together. And they’re expensive. I should know, I am one, but for higher education.
Lobo
One other thing to mention, what is meant by the optimal plan? In linear programming the optimal plan is one where the inputs will often not be optimized but in doing so still optimizes the broader plan. It may be a Sisyphean task to define the “optimal” plan. We had a high deductible plan that after the deductible paid everything. We liked it because it lightened the administrative burden. It was easy. The first X was on us and after that it was all on the insurance company. I think this was something to roll out to all with subsidies to meet those initial costs for those who are less fortunate.
JaneE
Reducing the number of choices is one of Costco’s strategies, and it seems to have paid off quite well for them in the retail area.
My health care is through my husband’s former employer, and for the last two years I am not even certain we have a choice. Before they would always send information about the Kaiser HMO plan and their PPO plan, but the last two years there was just a letter saying how much the Kaiser plan would cost. I wouldn’t be changing anyway, so making an inquiry just for curiosity is kind of pointless. It certainly makes life simpler to not have any choice at all.
It is entirely possible that I could get health insurance cheaper if I didn’t stay with Kaiser. But. I am happy with my doctors, and if I weren’t driving to Fontana or Ontario I would be driving to Reno or Carson City for care. Inertia wins.
ProfDamatu
@JCJ: This kind of thing is exactly why I stay with my current insurer, even though the other company offering plans in my area often has lower premiums. I know, based on four years’ experience, that Current Company will authorize the things I need done immediately, and pay claims without cavil. The competition…well, I haven’t had direct experience with them in more than a decade, but from what I hear, they aren’t any easier to deal with now than they were then (and back then, I was on an employer plan…I can only imagine how shitty they are to their high-cost Exchange enrollees!). So I stick with current company, even though they’ve now moved many of my doctors into a higher tier with more cost-sharing (a move that I suspect was occasioned by the fact that Competitor did that a few years ago).
Ohio Mom
It’s fine to discuss tips on choosing the best health coverage options within a person’s specific circumstances but let’s not forget that in the end, this is an absolutely ridiculous discussion to have to have.
This system is set up to make the biggest profits possible for the insurers. That’s it. The U.S. health care industry is an organized crime syndicate forever shaking us down.
Now I am still going to try to keep current on navigating this extortion racket but I hold no illusions that I’ll ever be sure that I made a good choice.
Here’s a small example: I carefully typed my zip code and current meds into the Medicare Part D site and chose accordingly.
Partway through the coverage year, I got a notice that my RA eye drops are not covered at the dosage prescribed (which is the standard one drop each eye, twice a day). A note from the ophthalmologist squelched that; it seems she writes that letter frequently.
And what happens if mid-year, you develop a new condition and need something that isn’t on the formulary of the Plan you thought you were choosing wisely?
Health coverage is a casino and we are not the house!
Ohio Mom
Barbara:
As I understand it, the tricky part of Advantage plans is when if in years hence, the covered person wants to switch back to Traditional Medicare.
For example, if they have acquired a complicated condition which would get better oversight without the limitations imposed by the Advantage Plans — say, they want to see a specialist out of the Advantage Plan’s network — they may be out of luck.
They will be subject to underwriting for a Medigap Plan; they may be charged unaffordable (to them) rates or even denied completely.
How is anyone supposed to see that far into the future? Well the insurance can, in the aggregate. That is why they are “the house” and always win.