Duke 2008 | ASHE | Equity and Efficiency in Health and Healthcare

Purpose: While standard economic theory posits that more options should generally make consumers better off, studies examining choice of everyday consumer goods have called this into question. This has not been examined for more consequential choices. The purpose of this study is to examine how Medicare beneficiaries respond to health plan choice sets of various sizes. Specifically, its goals are to a) examine whether more plan options increase the probability of switching plans, b) understand why beneficiaries respond to choice as they do, and c) explain the quality of Medicare beneficiary decisions. Methods: We utilize a sample of 1,106 Medicare beneficiaries who reside in high plan penetration areas and are currently or recently enrolled in a Medicare health plan. Data collection is via the internet and participants are drawn from Knowledge Network's nationally representative panel. Participants were given a hypothetical choice experiment that offered the opportunity to switch to a new health plan, whereby the size (2, 4, 8 or 16 options) and makeup of the choice set were randomized. Subjects were shown information about the available options that closely mimicked the presentation of the Medicare program. Results: While some choice is clearly beneficial to beneficiaries, consumers do not show a monotonically increasing probability of switching plans as the choice set rises; after 4 plans, there is no statistically significant increase in switching. This appears to be driven by beneficiaries' uncertainty with regard to their preferences at the lower end of the choice set and being cognitively overloaded at the higher end. Additionally, even though participants engaged in the choice, some still violated basic decision rules, calling into question the quality of their decisions. The order in which the plans appears influences choice (placing the current plan at the end of the list of available options increases switching by an average of 64% or 10 percentage points). The introduction of dominated options to the choice set also influences consumer behavior, in some scenarios doubling the probability of switching to a new plan. Finally, we also find some evidence of consumers making intransitive decisions. These violations are not limited to consumers that face larger choice sets. Conclusions: Medicare beneficiaries are generally given a large amount of plan choice (70% face greater than 10 options). This study concludes that after a choice set of 4 plans, consumers are not more likely to switch plans. Consumers also appear to be making non-trivial violations of basic decision rules, calling into question whether their utility as currently conceived is being maximized. More research is needed to advance the above results, as well as to begin the development of tools or other methods to assist consumers with such choices.