We study the impact of changing choice set size on the quality of choices in health insurance markets. Using novel data on enrolment and medical claims for school district employees in the state of Oregon, we document that the average employee could save $600 by switching to a lower cost plan. Structural modelling reveals large “choice inconsistencies” such as non-equalization of the dollar spent on premiums and out of pocket, and a novel form of “approximate inertia” where enrolees are excessively likely to switch to other plans that are close to the current plan on the plan design spreadsheet. Variation in the number of plan choices across districts and over time shows that enrolees make lower-cost choices when the choice set is smaller. We show that a curated restriction of choice set size improves choices more than the best available information intervention, partly because approximate inertia lowers gains from new information. We explicitly test and reject the assumption that this is because individuals choose worse from larger choice sets, or “choice overload”. Rather, we show that this feature arises from the fact that larger choice sets feature worse choices on average that are not offset by individual re-optimization.

We study choice over prescription insurance plans by the elderly using government administrative data to evaluate how these choices evolve over time. We find large "foregone savings" from not choosing the lowest cost plan that has grown over time. We develop a structural framework to decompose the changes in "foregone welfare" from inconsistent choices into choice set changes and choice function changes from a fixed choice set. We find that foregone welfare increases over time due primarily to changes in plan characteristics such as premiums and out-of-pocket costs; we estimate little learning at either the individual or cohort level.

We explore the in- and out- of sample robustness of tests for choice inconsistencies based on parameter restrictions in parametric models, focusing on tests proposed by Ketcham, Kuminoff and Powers (KKP). We argue that their non-parametric alternatives are inherently conservative with respect to detecting mistakes. We then show that our parametric model is robust to KKP's suggested specification checks, and that comprehensive goodness of fit measures perform better with our model than the expected utility model. Finally, we explore the robustness of our 2011 results to alternative normative assumptions highlighting the role of brand fixed effects and unobservable characteristics.

This paper investigates the degree to which choice inconsistencies documented in the context of Medicare Part D plan choice vary across consumers and geographic regions. Our main finding is that there is surprisingly little variation: regardless of age, gender, predicted drug expenditures or the predictability of drug demand consumers underweight out of pocket costs relative to premiums and fail to consider the individualized consequences of plan characteristics; as a result, they frequently choose plans which are dominated in the sense that an alternative plan provides better risk protection at a lower cost. We find limited evidence that the sickest individuals had more difficulty with plan choice, and we document that much of the variation in potential cost savings across states comes from variation in choice sets, not variation in consumers' ability to choose.

We evaluate the choices of elders across their insurance options under the Medicare Part D Prescription Drug plan, using a unique data set of prescription drug claims matched to information on the characteristics of choice sets. We document that elders place much more weight on plan premiums than on expected out of pocket costs; value plan financial characteristics beyond any impacts on their own financial expenses or risk; and place almost no value on variance reducing aspects of plans. Partial equilibrium welfare analysis implies that welfare would have been 27% higher if patients had all chosen rationally.

As health care reform moves forward in the United States, one common feature of virtually all proposals is to expand coverage for low income populations not through a traditional public insurance model, but rather through a “defined contribution exchange” mechanism. Under this approach, low income individuals would have a choice of a number of options for their insurance coverage. Individuals would receive a subsidy to purchase insurance that was tied to the lowest-cost plan (or some index of low-cost plans) and would pay some part of the difference if they chose a more expensive plan. This major departure from the traditional free/single-choice public payer model raises a number of important questions, but the key initial question is: How price-sensitive will lowincome consumers be in choosing across plans? While there is now a sizable literature evaluating plan choice in the context of employerprovided insurance, there are no previous studies of how these very low income populations will respond to choice in publicly financed insurance programs. In this paper, we study the plan choice of low-income enrollees in Massachusetts’ Commonwealth Care program that was established as part of the state’s health reform in April 2006. Enrollees in Commonwealth Care were given a choice of up to four Medicaid Managed The MassachuseTTs healTh Insurance experIMenT: early experIences †

One of the most sizable and least predictable shocks to economic opportunities in developing countries is major illness. We investigate the extent to which families are able to insure consumption against major illness using a unique panel data set from Indonesia that combines excellent measures of health status with consumption information. We find that there are significant economic costs associated with major illness, and that there is very imperfect insurance of consumption over illness episodes. These estimates suggest that public disability insurance or subsidies for medical care may improve welfare by providing consumption insurance.

We assess the effect of a means‐ and asset‐tested social insurance program, Medicaid, on the savings behavior of households. We do so using data on both asset holdings and consumption, matched to information on the eligibility of families for health insurance coverage under this program. Exogenous variation in Medicaid eligibility is provided by the dramatic expansion of this program over the 1984–93 period. We document that Medicaid eligibility has a sizable and significant negative effect on wealth holdings, and we confirm this finding by showing a strong positive association between Medicaid eligibility and consumption expenditures. We also exploit the fact that asset testing was phased out by the Medicaid program over this period to document that these Medicaid effects are much stronger in the presence of an asset test.

The authors provide direct evidence on the effect of health insurance on health outcomes by examining the dramatic increases in the eligibility of pregnant women for the Medicaid program between 1979 and 1992. They find that the 30-percentage-point rise in Medicaid eligibility significantly lowered the incidence of low birth weight and infant mortality. Targeted changes in Medicaid eligibility that were restricted to specific low-income groups had much larger effects on birth outcomes than broader expansions of eligibility to women with higher income levels because of much lower take-up of this entitlement by the latter group.

We document that the source of funds for paying health insurance premiums has a dramatic impact on plan choices. We focus on the MediSave program in Singapore, a medical savings account that is used to pay out-of-pocket medical spending. Residents can also pay their health insurance premiums with cash or MediSave funds, but are subject to limits that vary by age and over time. By exploiting variations in those limits, we consistently find that when individuals are able to pay their health insurance premiums with MediSave funds, they are less price sensitive and more willing to enroll in more generous plans. We develop and estimate a mental accounting model which explains these patterns. We embed and reject alternative explanations such as hassle costs and liquidity constraints. We then extend this model and show that mental accounting can explain much, but not all, of the misweighting of premiums relative to out-of-pocket expenses in health insurance choice. We also find that allowing MediSave payment for both premiums and out-of-pocket expenses (e.g. putting them in the same mental account) enhances individual welfare and reduces adverse selection.