Beyond the Nudge: Behavioral Economics and Health Insurance George - - PowerPoint PPT Presentation
Beyond the Nudge: Behavioral Economics and Health Insurance George Loewenstein Carnegie Mellon University Bhargava & Loewenstein 2015. Behavioral Economics and Public Policy: Beyond Nudging. American Economic Review, Paper &
Bhargava & Loewenstein 2015. Behavioral Economics and Public Policy: Beyond Nudging. American Economic Review, Paper & Proceedings
Camerer, C., Issacharoff, S. Loewenstein, G., O'Donoghue, T. & Rabin, M. (2003). Regulation for Conservatives: Behavioral Economics and the Case for "Asymmetric Paternalism" University of Pennsylvania Law Review, 1151(3), 1211-1254. Sunstein, C.R. and Thaler, R.H. (2003). "Behavioral Economics, Public Policy, and Paternalism: Libertarian Paternalism". American Economic Review, Papers and Proceedings, 93(2): 175 – 179.
“A nudge, as we will use the term, is any aspect
behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid.“ Thaler and Sunstein, Nudge “I am very optimistic about the future of that work [referring to nudges], which is characterized by achieving medium-sized gains by nano- sized investments.” Daniel Kahneman; in The Daily Beast
Loewenstein, G., Brennan, T. & Volpp, K.G. (2007). Asymmetric paternalism to improve health behaviors. Journal of the American Medical Association. 298(20), 2415-2417. Wisdom, J., Downs, J. & Loewenstein, G. (2009). Promoting Healthy Choices: Information vs. Convenience. American Economic Journal: Applied, 99(2), 159-64. Keller, P.A., Harlam, B., Loewenstein, G. & Volpp, K.G. (2011). Enhanced active choice: a new method to motivate behavior change. Journal of Consumer Psychology, 21(4), 376-383. Jue, J.J., Press, M.J, McDonald, D., Volpp, K. Asch, D.A., Mitra, N., Stanowski, A.C. & Loewenstein, G. (2012). The impact of price discounts and calorie messaging on beverage consumption: a multi-site field study. Preventive Medicine, 55, 629-533. Downs, J. S., Wisdom, J., Wansink, B., & Loewenstein, G. (2013). Supplementing Menu Labeling With Calorie Recommendations to Test for Facilitation Effects. American Journal of Public Health, 103(9), 1604-1609. Long, J.A., Jahnle, E.C., Richardson, D.M., Loewenstein, G. & Volpp, K.G. (2012). A Randomized Controlled Trial of Peer Mentoring and Financial Incentive to Improve Glucose Control in African American Veterans. Annals of Internal
Halpern, S.D., Loewenstein, G., Volpp, K.G., Cooney, E., Vranas, K. Quill, C.M., McKenzie, M.S., Harhay, M.O., Gabler, N.B., Silva, T. Arnold, R., Angus, D.C., & Bryce, C. (2013). Default Options In Advance Directives Influence How Patients Set Goals For End-Of-Life Care. Health Affairs, 32(2). Gopalan, A., Tahirovic, E., Moss, H., Troxel, A.B., Zhu, J., Loewenstein, G. & Volpp, K.G. (forthcoming). Translating the hemoglobin A1C with more easily understood feedback: A Randomized Controlled Trial. Journal of General Internal Medicine. Downs, J.S., Wisdom, J. & Loewenstein, G. (forthcoming). Helping Consumers Use Nutrition Information: Effects of Format and Presentation. American Journal of Health Economics. Loewenstein, G., Bryce, C., Hagmann, D. and Rajpal, S. (forthcoming). Warning: You Are About to be Nudged. Behavioral Science & Policy
– e.g., subsidizing corn (and hence corn oil and syrup) – tax-protected saving system that disproportionately benefits the affluent, who already save enough – Pay doctors fee for service, then encourage patients to engage in healthier behaviors
the source of problems, which may have unintended consequences such as:
– blaming the individual for problems that are structural (e.g., obesity, low savings) – not focusing on true underlying causes
called for to deal with gargantuan problems – e.g., – Income inequality – Climate change – Social and economic challenges caused by new technologies
when surgery is needed Need to continue to integrate insights from psychology, but move beyond nudges; embrace more substantial policies
Typical health care plans…
Loewenstein, G., Friedman, J.F., McGill, B., Ahmad, S., Beshears, J., Choi, J., Kolstad, J., Laibson, D., Madrian, B., List, J., Volpp, K.G. (2013). Consumers’ Misunderstanding
‒ Deductible: Expenses that must be paid out-of-pocket before coverage kicks in ‒ Copayment: Payment for each visit to the doctor or specialist ‒ Coinsurance: Share of costs for medical services covered by insurer after deductible is met ‒ Out-of-Pocket Maximum: Total cap on out-of-pocket spending after deductible
14% answered all 4 multiple choice questions correctly
Next, presented them with a very simplified representation of a traditional insurance plan and asked them to compute what they would pay for services
Self-perceived and actual comprehension of insurance cost-sharing concepts
(5-response multiple choice items; p of guessing correctly = 20%) Concept % who believe they know % answering correctly Deductible 97% 78% Copay 100% 72% Coinsurance 57% 34% Maximum out-of-pocket 93% 55%
Bhargava & Loewenstein (forthcoming) Choosing a Health Plan: Complexity and Consequences Journal of the American Medical Association. Bhargava, Loewenstein & Sydnor (under revision, Quarterly Journal of Economics). Choose to Lose? Employee Health-Plan Decisions from a Menu with Dominated Options.
Imagine a person who has a choice between two simple health insurance plans. Plan A has a monthly premium of $150 and a deductible of $1000 Plan B has a monthly premium of $100 and a deductible of $1500 These plans cover all costs after the deductible is met with no copay or coinsurance. Which of the following do you think is correct?
Plan A
Plan B
Evolution of the firm’s health-insurance offerings
Primary focus for today We presented our findings to them
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1.5k/90/15 $1,000 $930
$750 $1,463 $250 $533 1.5k/90/15 $500 $1,568 $500 $638 1.5k/90/15 $350 $2,134 $650 $1,204 1.5k/90/25 $1,000 $761
$750 $1,377 $250 $616 1.5k/90/25 $500 $1,474 $500 $713 1.5k/90/25 $350 $2,047 $650 $1,286 1.5k/80/15 $1,000 $877
$750 $1,408 $250 $531 1.5k/80/15 $500 $1,497 $500 $620 1.5k/80/15 $350 $2,037 $650 $1,160 1.5k/80/25 $1,000 $817
$750 $1,321 $250 $504 1.5k/80/25 $500 $1,419 $500 $602 1.5k/80/25 $350 $1,957 $650 $1,140 2.5k/90/15 $1,000 $748
$750 $1,333 $250 $585 2.5k/90/15 $500 $1,455 $500 $707 2.5k/90/15 $350 $1,983 $650 $1,235 2.5k/90/25 $1,000 $656
$750 $1,235 $250 $579 2.5k/90/25 $500 $1,372 $500 $716 2.5k/90/25 $350 $1,862 $650 $1,206 Deductible Diff Moop/Coins/ Copay Deductible Premium Prem Diff 1k 2.5k/80/15 $1,000 $713
$750 $1,217 $250 $505 2.5k/80/15 $500 $1,315 $500 $602 2.5k/80/15 $350 $1,889 $650 $1,176 2.5k/80/25 $1,000 $662
$750 $1,168 $250 $506 2.5k/80/25 $500 $1,252 $500 $590 2.5k/80/25 $350 $1,808 $650 $1,146 3k/90/15 $1,000 $657
$750 $1,260 $250 $603 3k/90/15 $500 $1,378 $500 $722 3k/90/15 $350 $1,912 $650 $1,255 3k/90/25 $1,000 $654
$750 $1,173 $250 $519 3k/90/25 $500 $1,252 $500 $598 3k/90/25 $350 $1,778 $650 $1,124 3k/80/15 $1,000 $641
$750 $1,089 $250 $448 3k/80/15 $500 $1,152 $500 $511 3k/80/15 $350 $1,608 $650 $967 3k/80/25 $1,000 $634
$750 $1,038 $250 $404 3k/80/25 $500 $1,114 $500 $480 3k/80/25 $350 $1,605 $650 $971 Deductible Diff Moop/Coins/ Copay Deductible Premium Prem Diff 1k
(shaded ≈ dominated on after-tax basis )
22 0,1 0,2 0,3 0,4 0,5 0,6 500 1000 1500 2000 2500 3000 3500 4000 2000 4000 6000 8000 10000 12000 14000 Fraction with those Total Health Bills Employee Medical Spending Total Health Bills
Total Employee Spending (Prem + Out of Pocket) by Total Medical Spending
Premium for $1,000 Deductible Option Normed at $0 for Comparison [Example: $2,500 MOOP, 80% Coinsurance] $1,000 ded
Example of dominated payment schedule
23 0,1 0,2 0,3 0,4 0,5 0,6 500 1000 1500 2000 2500 3000 3500 4000 2000 4000 6000 8000 10000 12000 14000 Fraction with those Total Health Bills Employee Medical Spending Total Health Bills
Total Employee Spending (Prem + Out of Pocket) by Total Medical Spending
Premium for $1,000 Deductible Option Normed at $0 for Comparison [Example: $2,500 MOOP, 80% Coinsurance] $1,000 ded $750 ded
Example of dominated payment schedule
24 0,1 0,2 0,3 0,4 0,5 0,6 500 1000 1500 2000 2500 3000 3500 4000 2000 4000 6000 8000 10000 12000 14000 Fraction with those Total Health Bills Employee Medical Spending Total Health Bills
Total Employee Spending (Prem + Out of Pocket) by Total Medical Spending
Premium for $1,000 Deductible Option Normed at $0 for Comparison [Example: $2,500 MOOP, 80% Coinsurance] $1,000 ded $750 ded $500 ded
Example of dominated payment schedule
25 0,1 0,2 0,3 0,4 0,5 0,6 500 1000 1500 2000 2500 3000 3500 4000 2000 4000 6000 8000 10000 12000 14000 Fraction with those Total Health Bills Employee Medical Spending Total Health Bills
Total Employee Spending (Prem + Out of Pocket) by Total Medical Spending
Premium for $1,000 Deductible Option Normed at $0 for Comparison [Example: $2,500 MOOP, 80% Coinsurance] $1,000 ded $750 ded $500 ded $350 ded
Example of dominated payment schedule
26 0,1 0,2 0,3 0,4 0,5 0,6 500 1000 1500 2000 2500 3000 3500 4000 2000 4000 6000 8000 10000 12000 14000 Fraction with those Total Health Bills Employee Medical Spending Total Health Bills $1,000 ded $750 ded $500 ded $350 ded
Example of dominated payment schedule
14% 36% 13%
0% 10% 20% 30% 40% 50% 350 500 750 1000 Not dominated Dominated
37%
For choice of the $500 deductible over the $1,000 deductible (36% of employees) to be explained by a preference for payroll deduction dollars vs. out-of-pocket expense dollars, employees had to be willing to pay $625 in additional premiums through payroll deductions over 12 months to avoid an additional $226 in expected out-of- pocket expenses, and a maximum of $500, over the course of the year (from $500 to $1,000)
actuarially best plan (or otherwise equivalent $1k plan) – cost equivalent to about 40%
regressive ~40% of employees
EXPERIMENT 1: SEARCH COMPLEXITY
Qualtrics panel
menus with actual prices – Aggressive screening question to check for attention to survey (caught 35%)
between-subject, 2 x 2 x 2 design:
SHOWN HERE: Sequential Choice, Single Attribute, Monthly Premiums
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N = 2,317
Comparison of deductible choices: experimental vs employee field data
Pooled Experiment 1 Data Employee Sample
Analogue to Firm Interface + Simultaneous Choice + Annualized Premium SIMPLE MENU EXPERIMENTAL CONDITIONS
Share of Dominated Plan Choice
% of non-dominated choices
EXPERIMENT 2: HEALTH LITERACY AND SEARCH MOTIVATION
Financial Motivation to Search
Scenario-Based Education Intervention
Correlation of Health Insurance Literacy, Search Motivation and Choice Quality (one attribute menu only (results for two attribute menu virtually identical))
(one attribute menu only (results for two attribute menu virtually identical))
All Respondents Low Literacy High Literacy
EXPERIMENTAL CONDITIONS
– Employer-sponsored (e.g., our example today) – ACA marketplaces (‘Obamacare’): average of 47 options differing on multiple dimensions – Medicare: median of 18 Advantage plans and 30 Medicare Part D plans
– Gabaix and Laibson (2006)”shrouded attributes” – Heidhues and Kőszegi (2014) “deceptive competition” The ACA Marketplace will “offer Americans competition, choice, and
transparent, level playing field, driving down costs [and] will give individuals… a choice of plans to fit their needs.” Kathleen Sebelius, Secretary of Health and Human Services
Loewenstein, G., Friedman, J.F., McGill, B., Ahmad, S., Beshears, J., Choi, J., Kolstad, J., Laibson, D., Madrian, B., List, J., Volpp, K.G. (2013). Consumers’ Misunderstanding of Health Insurance. Journal of Health Economics. 32:850– 862