It’s Not Just You: Picking a Health Insurance Plan Is Really Hard

Most Americans make poor choices. So do most professional insurance brokers, a new study finds. But robots may help.

Paul Rickards

Anya Samek, an economist, has found that consumers make better choices among health plans when presented with a few simple calculations. So when she switched jobs last year and had to choose a plan herself, she tried entering the various plan features into a spreadsheet to replicate her tool. She gave up, determining the task too complicated.

“I picked a plan because in my research I tend to show that high-deductible plans do better for people,” said Ms. Samek, an associate professor at the University of California, San Diego. “But it’s just a guess.”

When Paul Krugman, the Nobel-winning economist and a New York Times columnist, started a teaching job at the City University of New York, he had a choice between one union health plan at The Times and an array of university options, “which I found incomprehensible,” he said in an email.

“I asked H.R. at CUNY if they could explain the differences; they said no. So I went with The Times, precisely because it didn’t require that I make a choice!”

For most Americans, with or without a Ph.D in economics, right now is the time to pick your health insurance. Medicare beneficiaries can choose a Medicare Advantage plan or a Part D prescription drug plan. People with coverage at work can choose from the options their employers offer. People who buy their own insurance can make a choice on the Obamacare marketplace in their state. In Seminole County, Fla., right now, Obamacare customers can choose among 174 different health plans.

The range of choice is generally heralded as a good thing: Not everyone wants the same plan, the thinking goes, so offering multiple options helps people shop for the one that is best for them. That logic drove the creation of Medicare Advantage, with legislation passed by Republicans, and drove the design of Obamacare, with legislation passed by Democrats.

But it turns out in real life most people are terrible at picking the health plan that is right for them. Health insurance is a complicated financial product, and study after study has shown that people routinely pick bad plans, even choosing options that leave them worse off financially in every possible scenario. And, because people are so bad at choosing good plans, the market often sends weird signals to insurance companies, encouraging them to offer more of the wrong plans instead of the right ones.

People struggle to make good choices when it comes to all kinds of financial products, but health insurance is especially confusing, with its mix of technical benefits and fees. Many Americans don’t understand terms like “deductible” or “coinsurance” very well. And few are good at predicting what sort of health care needs they will have in the coming year. Picking an ideal health plan requires combining all of these features — knowing what you might use, what it might cost you, and how those expenses combine with the plan’s monthly premium.

Online brokerages have found that recommending certain plans has a huge effect on what people pick, a sign that few people are doing this complex math themselves. Noah Lang, the C.E.O. of Stride Health, which helps people shop for health plans including Obamacare plans, said so many people would pick the first plan presented to them that the company changed its website to offer a handful of recommended “green” plans. Last year, more than 70 percent of customers bought one of those plans.

“People want advice, they want guidance,” Mr. Lang said. “And it’s pretty hard.”

The people most likely to make bad choices appear to be those least able to afford it. A recent study in the Netherlands, which offers insurance to everyone through an Obamacare-like marketplace, found that only 5 percent of Dutch customers did a better job at choosing an ideal plan than they would have by choosing a plan at random. And the people in that top 5 percent tended to be have college degrees and jobs in technical fields. People with less education and income, who tend to be in worse health, were very likely to choose a plan that cost them more to cover their health care — a situation that might leave them skimping on needed medicine or procedures.

But even highly educated Dutch professionals struggled. People who worked in the insurance industry and had advanced degrees made a good choice about 30 percent of the time. And only about 40 percent of trained statisticians — the group with the best performance — chose good plans for their needs.

In the United States, a working paper has found that many professionals who help people select health insurance are also bad at picking plans, performing substantially worse than a computer algorithm.

“These people who are supposed to make the market work can’t do it at all,” said Jonathan Kolstad, an associate professor of economics at the University of California, Berkeley, who was a co-author on both studies. Professor Kolstad said the work had made him reconsider why we value markets for health insurance so highly when they are so hard to use.

Picking a plan is hard, but some simple guidelines can help a little. It’s helpful to know whether a given plan covers the doctors and hospitals you use, for example. And if you’re willing to take more financial risk, you may prefer a higher-deductible plan with lower premiums, while if you value more predictable expenses, a lower-deductible plan may work better. But people’s actual health care needs and insurance fine print vary enough that those guides can lead you astray. The literature shows that it’s not uncommon for people to choose a plan that costs them $1,000 more than the best plan, over the course of the year.

Most of the research on plan choice looks at the financial design of the plan. Researchers can look at the options, then see which health services people end up using, and can tally total costs for various choices. That approach leaves out some other elements of health plans, like the choice of doctors, or whether the company offers good customer service. The study on brokers found that people whose plan selection was aided by the computer program were less likely to switch plans the next year than those who took the unassisted advice of the broker, a sign that they were happier with the overall package.

But what is the alternative to choice? Amanda Starc, an associate professor of management at Northwestern University, said there was evidence that people really did want different things from health insurance. About a third of people 65 and older are currently enrolled in private Medicare Advantage plans, a share that is large enough to suggest that many would be less happy with only the choice of government Medicare.

“I don’t think the answer is obvious, and yet I think there is real value in choice,” said Professor Starc, whose recent work shows that some Medicare Advantage plans may leave patients better off than others in terms of health, not just finances. She, like Mr. Kolstad, thought tools like the broker algorithm could steer people into better options.

But she acknowledged the difficulty. Colleagues and family friends frequently ask her for advice about the best health plan. She tends to steer her higher-earning professor colleagues to a high-deductible plan that covers the university’s hospitals, figuring they can afford it. Finding the best choice for other people, she said, requires more work.

“Whenever anybody asks me about this, I say my dad is the only Medicare beneficiary who could figure this out, because he could call me,” she said.

Other economists use the same rules of thumb that cause many Americans to choose bad plans: They pick a plan based on simple features, select a preferred brand, or ask their friends.

Brigitte Madrian, the dean of the Marriott School of Business at Brigham Young University, has also studied health insurance, but said picking a plan for her family when she arrived in Utah was a heavy lift. She set aside an entire Saturday for the task, scouring websites and constructing spreadsheets. Ultimately, she asked her fellow health economists what they had chosen.

“If I’m having a hard time, what is the rest of the population doing?” she said she wondered. “They must be throwing darts.”

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