The Costs of Poor Health Plan Choice and Prescriptions for Reform

We investigate the costs and consequences of plan choice in the ACA. In a first study, we assess the potential financial consequences of inefficient plan choices using pricing data for the several thousand plans listed on federal exchanges. In a second study, we investigate the efficiency with which consumers make plan decisions by observing hypothetical plan choices from experimentally varying menus. We show that the metal labels of the ACA lead to less efficient choices than alternative labels that emphasize considerations of health risk, or even generic plan labels. We argue that a new choice architecture, or structurally redesigned insurance, informed by a deeper understanding of how consumers make complicated health decisions, could substantially improve consumer welfare.