Replacing the Affordable Care Act: Lessons From Behavioral Economics

When All That Glitters Is Gold: Dominated Plan Choice on Covered California for the 2018 Plan Year

Policy Points Purchasing health insurance is a complex task with multiple potential points of failure. In 2018, following the silver-loading price shock, 20.2% of households earning above 200% of the federal poverty level with coverage through the two Covered California insurers who sold dominated silver plans purchased the inferior, dominated silver plan. Individuals who were automatically reenrolled were more likely to purchase an inferior, dominated plan. Automatic reenrollment rules and marketplace choice architecture should be modified to avoid placing people into dominated health insurance policies and help consumers more easily select superior coverage for themselves.

CONTEXT

The Affordable Care Act (ACA) individual health insurance marketplaces rely on purchasers to make informed choices to impose price and quality discipline on a complex array of insurance products. A sudden and minimally expected policy shock in the fall of 2017-the termination of direct federal payment for cost-sharing reduction (CSR) subsidies-led to a substantial change in the relative prices of silver and gold plans on the Covered California insurance marketplace. From 2014 to 2017, all gold plans in California were more expensive than comparable silver plans that were offered by the same insurer using the same network in the same county. For the 2018 plan year, however, some gold plans that had lower cost sharing also had lower premiums than did comparable silver plans, resulting in silver "dominated" plans being sold through Covered California.

METHODS

We used the Covered California enrollment and product files from 2014 to 2018 in a retrospective data analysis of plan choice. We examined individuals earning above 200% of the federal poverty level who purchased plans from insurers who sold dominated silver plans in 2018.

FINDINGS

We found that 3.9% of all Covered California enrollees in 2018 chose a strictly and transparently dominated plan. Among households with incomes above 200% of the federal poverty level that were enrolled in plans from the two insurers that offered dominated plans, 20.2% chose a dominated plan. Households that actively enrolled in 2018 and were enrolled in a silver plan in the previous year enrolled in a dominated plan at higher rates than did new enrollees and those who were enrolled in nonsilver plans in the previous year. More than 30% of households that had their coverage automatically renewed in 2018 enrolled in a dominated plan. On average, households enrolled in dominated plans in 2018 spent an additional $38.87 per month in premiums.

CONCLUSIONS

Households routinely chose dominated plans and were exposed to both higher monthly premiums and higher potential cost sharing. Health insurance marketplaces should improve decision supports and choice curation to eliminate the possibility of individuals choosing dominated plans.

Valuing Protection against Health-Related Financial Risks

There is strong interest in both developing and developed countries towards expanding health insurance coverage. How should the benefits, and costs, of expanded coverage be measured? While the value of reducing the financial risks that result from insurance coverage have long been recognized, there has been less attention in how best to measure such benefits. In this paper, we first provide a framework for assessing the financial value from health insurance. We focus on 3 distinct potential benefits: Pooling the risk of unexpected medical expenditures between healthy and sick households, redistributing resources from high to low income recipients, and smoothing consumption over time. We then use this theoretical framework and an illustrative example to provide practical guidelines for benefit-cost analysis in capturing the full benefits (and costs) of expanding health insurance coverage. We conclude by considering other potential financial effects of broad insurance coverage, such as the ability to consolidate purchases and thus lower input prices.