Health Insurance Coverage and Take‐Up: Lessons from Behavioral Economics

Abstract

Context: Millions of uninsured Americans ostensibly have insurance available to them—many at very low cost—but do not take it up. Traditional economic analysis is based on the premise that these are rational decisions, but it is hard to reconcile observed enrollment patterns with this view. The policy prescriptions that the traditional model generates may thus fail to achieve their goals. Behavioral economics, which integrates insights from psychology into economic analysis, identifies important deviations from the traditional assumptions of rationality and can thus improve our understanding of what drives health insurance take‐up and improved policy design. Methods: Rather than a systematic review of the coverage literature, this article is a primer for considering issues in health insurance coverage from a behavioral economics perspective, supplementing the standard model. We present relevant evidence on decision making and insurance take‐up and use it to develop a behavioral approach to both the policy problem posed by the lack of health insurance coverage and possible policy solutions to that problem. Findings: We found that evidence from behavioral economics can shed light on both the sources of low take‐up and the efficacy of different policy levers intended to expand coverage. We then applied these insights to policy design questions for public and private insurance coverage and to the implementation of the recently enacted health reform, focusing on the use of behavioral insights to maximize the value of spending on coverage. Conclusions: We concluded that the success of health insurance coverage reform depends crucially on understanding the behavioral barriers to take‐up. The take‐up process is likely governed by psychology as much as economics, and public resources can likely be used much more effectively with behaviorally informed policy design.

Administrative Burden: Learning, Psychological, and Compliance Costs in Citizen-State Interactions

“…But research from behavioral economics warns us that decisions rarely follow this model (for an overview see Baicker, Congdon, andMullainathan 2012, andShafir, 2013). The impact of burdens depends upon on how individuals construe the world, not on objective measures of costs and benefits.…”

The demand for health insurance and behavioural economics

“…After all, insured are known to have limited knowledge about their health insurance [15] and to misunderstand complex price schedules including premiums and cost sharing arrangements [3]. Dutch individuals, for instance, do not know what type of health policy they have and are ignorant with respect to aspects such as deductibles, coverage and healthcare providers covered.…”

The Value of Medicaid: Interpreting Results from the Oregon Health Insurance Experiment

“…e.g., [7] for a description of some of this literature), we avoid making such assumptions at the outset. We therefore define the welfare impact for Medicaid recipients , γ (q), as the implicit solution to:…”

“…However, such notions require assumptions about optimization and a specification of the budget set. Given the large literature questioning the optimality of healthcare choices (see, 7 Formally, we assume Θ is a measurable probability space with measure µ. 8 We assume that q affects health only through its effect on medical spending.…”

“…7 We normalize the resource costs of m and c to unity so that m represents the true resource cost of medical care. For the sake of brevity, we will refer to m as "medical spending" and c as "consumption.…”