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Understanding Consumer Health Insurance Decision-Making Under the Affordable Care Act

  • Author(s): Rasmussen, Petra Willis
  • Advisor(s): Rice, Thomas H
  • et al.
Abstract

Following the implementation of the Affordable Care Act (ACA), millions of Americans have gained coverage, many for the first time in their lives. The law has created more options for affordable coverage and put millions into the driver seat when it comes to selecting their coverage and enrolling in a health plan. The individual health insurance market has undergone significant changes under the ACA, including the creation of state-based and federally facilitated marketplaces where individuals in all states can go to shop for and enroll in potentially subsidized individual market coverage. This dissertation seeks to improve our understanding of consumer decision-making in this new health insurance landscape. Through three sets of analyses of consumer behavior during the insurance decision-making process, this dissertation will provide needed updates to the literature on this topic. It also highlights key considerations for policymakers and agencies to weigh when evaluating how consumers might respond to policies that change their available coverage options.

The first paper examines two key components of health plans that individuals weigh when making enrollment decisions - cost and quality. The ACA requires both federally facilitated and state-based marketplaces to provide easy to understand plan quality information to customers shopping for coverage. Through two hypothetical choice experiments, this paper examines how consumers weighed health plan costs and quality in different choice environments and explored the consumer characteristics associated with a preference for high quality plans as well as with the selection of inferior plans. In each experiment, participants responded to a series of choice scenarios that asked them to choose between five health plans that differed only in their costs and quality ratings, represented by stars. Overall, between scenarios individuals were willing to pay more for higher quality plans when the quality ratings of all available plans were lower, when the higher quality plan’s rating was two stars higher rather than one star higher than other plans, and when the price differential was lower. More risk averse participants had higher predicted probabilities of consistently choosing the higher quality, more expensive plan. However, a significant portion of the study population made poor decisions: more than a third of participants chose a dominated plan at least once. The less numerate, those with higher risk-seeking tendencies, and those with low health insurance literacy had the highest predicted probabilities of choosing poorly. The second experiment also found that individuals are more likely to choose a dominated plan when the quality star ratings are similar across plans.

The second and third papers use data from California’s health insurance marketplace, Covered California, to examine consumer behavior following the implementation of silver loading in 2018. Silver loading is a policy California and other states put into place after the cancellation of federal funding for a set of subsidies included in the ACA that reduce the amount of cost-sharing required by low-income enrollees in silver tier marketplace plans, known as cost-sharing reductions (CSRs). Silver loading placed the cost of providing CSRs in the absence of federal funding onto the premiums of silver plans, subsequently raising premium subsidies which are tied to the cost of silver coverage.

The second paper focuses on enrollment in silver plans that became dominated because of silver loading. This paper looks at enrollment in these plans over time (both before and after they became dominated) and by enrollees’ prior year enrollment decisions to examine differences in enrollment by pre-existing biases regarding metal tier labeling and the potential role of status quo bias. Overall, more than 60,000 Californians enrolled in a dominated plan in 2018 and, on average, households enrolled in dominated plans in 2018 spent an additional $38.87 per month in premiums. Households that were enrolled in silver coverage in the year before the examined silver plans became dominated had the highest predicted probability of enrolling in a dominated plan in 2018.

The third paper examines Covered California consumers’ decisions to switch health plans during open enrollment over the first four open enrollment periods where individuals could renew their coverage (2015-2018). Under the ACA, switching rates in the individual market have been much higher than those previously seen in other markets. Looking at re-enrollees in Covered California, this paper provides data on consumer switching behavior over time and identifies the consumer, plan, and choice environment characteristics associated with consumers’ decisions to change their coverage during open enrollment. The percentage of re-enrollees in Covered California who made changes to their coverage steadily increased between the 2014-15 and 2017-18 open enrollment periods. Following the implementation of silver loading the proportion of consumers who moved into gold plans during the 2017-18 open enrollment period drastically increased, compared to previous years. Among bronze or silver plan enrollees who switched metal tiers during open enrollment, those who could enroll in gold plans that were no more than $49 per month more expensive than their initial bronze or silver plan had a significantly higher probability of switching into gold coverage than those who faced larger premium differences.

The results of this dissertation identify several consumer, health plan, and choice environment characteristics that can influence consumer health insurance decision-making. Policymakers and marketplace regulators can use this work to help inform the decisions they make around marketplace choice architecture, policies aimed at retaining enrollees and recruiting new consumers, and decisions about re-enrollment for consumers who do not actively renew their coverage during annual re-enrollment periods.

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