Choice, price competition and complexity in markets for health insurance

Abstract

The United States and other nations rely on consumer choice and price competition among competing health plans to allocate resources in the health sector. A great deal of research has examined the efficiency consequences of adverse selection in health insurance markets, less attention has been devoted to other aspects of consumer choice. The nation of Switzerland offers a unique opportunity to study price competition in health insurance markets. Switzerland regulates health insurance markets with the aim of minimizing adverse selection and encouraging strong price competition. We examine consumer responses to price differences in local markets and the degree of price variation in local markets. Using both survey data and observations on local markets we obtain evidence suggesting that as the number of choices offered to individuals grow their willingness to switch plans given a set of price dispersion differences declines allowing large price differences for relatively homogeneous products to persist. We consider explanations for this phenomenon from economics and psychology.

Statutory health insurance competition in Europe: A four-country comparison

“…Swiss research shows how the probability of switching is significantly lower in areas with larger numbers of insurers, even where premium variation is significant (23). Furthermore, among survey respondents who were very dissatisfied with their current insurer, 34% intended to switch in areas with fewer than 50 statutory health insurers versus 22% in areas with more than 50 insurers.…”

“…Survey data from the Netherlands and Switzerland suggest many people feel no need to switch because they are satisfied with their current insurer (45% in the Netherlands and 79% in Switzerland) (22,23). There is also evidence of people preferring to maintain the status quo (24) or using subjective measures of quality to determine insurer choice.…”

“…There is also evidence of people preferring to maintain the status quo (24) or using subjective measures of quality to determine insurer choice. Forty per cent of people surveyed in Switzerland chose an insurer based on parents' and friends' choices and 'tradition', while 13.5% said they stayed with their insurer out of habit; those who had been with an insurer for longer were less likely to express an intention to switch (23). About 25% said they did not try to choose the insurer with the lowest premiums.…”

Introducing risk adjustment and free health plan choice in employer-based health insurance: Evidence from Germany

“…One could speculate that the decrease in sickness funds has even dampened the increase in switching rates due to less choice. On the other hand, Frank and Lamiraud (2009) have shown that more choice-more than 50 plans to choose from-may actually reduce enrollees' willingness to switch.…”

Consumers’ misunderstanding of health insurance

“…First, limited understanding is likely to lead to suboptimal decisions. Prior research has found that individuals often stick with the status quo, maintaining the same coverage they had in the past even when superior options are available, seek advice from family or friends who may also have low levels of health literacy, and commonly enroll in highly advertised plans or those with a well-known brand name (Frank and Lamiraud, 2009;Handel, 2011). If simplifying insurance reduced these tendencies, it could potentially improve the quality of choices.…”