CFACT Seminar


Health Plan Inertia and the Status Quo Bias:
How Medicare Advantage Beneficiaries Choose Plans


Presenter

Paul Jacobs of CFACT

Date/Location
Monday, May 11, 2015
10:30 a.m. – 12:00 p.m.
CFACT Rock Creek Conference Room
Rockville, MD

Abstract

Recent health policy reforms are premised on the idea that consumers can choose health plans wisely and repeat this decision in subsequent periods, thus ensuring a healthy level of insurer competition. Behavioral economists point out that individuals may be subject to a bias toward their status quo choice and thus may reenroll in health plans without actively considering the option to switch.

We investigate the health insurance choices of Medicare Advantage enrollees (MA), most of whom have a wide variety of plan choices and an annual opportunity to switch plans. Using a unique combination of administrative databases, we analyze beneficiary responsiveness to the price (premium) and benefits of health plans, and whether they are less likely to switch plans over time. We attempt to rule out the importance of switching costs by including measures of mental and physical health status as well as the number of plan choices available to beneficiaries. In our multivariate models of plan switching, including an instrumental variable approach, we find evidence consistent with the status quo bias. Over the 2010-2013 period, enrollees with more consecutive years enrolled in the same plan were less likely to switch out of that plan for a given increase in the plan’s premium.