Standard Plans and simplifying the choice space

My friend, colleague and frequent co-author Dr. Petra Rasmussen and her co-author Dr. Erin Taylor have a recent opinion piece in JAMA Health Forum on a matter of intense personal interest to me: How can the choice space for health insurance on Healthcare.gov be simplified?

While Americans value choice, research in behavioral economics and psychology has shown that people struggle with the decision-making process when they encounter too many choices and end up relying on biases and quick tricks, also known as heuristics, to cull their options and help them make a decision. This can lead individuals to choose a plan that may not be the best for them. With health insurance, the decision can be particularly challenging, and mistakes can be costly…
Without greater standardization, the use of metal-tier labels alone cannot successfully convey helpful information to consumers about the plans…

HHS should learn from what states like California and federal agencies such as CMS have done to standardize Marketplace and Part D plans. To limit choice overload and ease the decision-making process for enrollees, HHS should consider replicating what Medicare and Covered California have done by requiring plans sold by the same insurer to be meaningfully different from one another.

I think that they are heading down the right path. I am a bit reluctant to embrace meaningful difference as the appropriate pathway though as the Obama Administration definition of meaningful difference was one difference on seven different vectors. The difference could be a $100 change in deductible or eligibility for a Health Savings Account. These differences are real, but small. Are they truly decision altering differences or are they means where a cynical plan designer can tweak their product offerings to dominate virtual and mental shelf space? I inkle on the later.

Instead, I think there is another approach that might allow for meaningful variation and differentiation. We have strong evidence that the marginal enrollees are buying basically on premium. Quality, network, customer service, brand recognition are, at most, secondary concerns to the marginal enrollee. So let’s embrace that.

I would offer that insurers when rolled up to the corporate level should be able to offer whatever they want in each metal tier but there must be a 3% or greater difference in baseline premium for each plan that is offered. Under this schema, an insurer that really wants to offer a no deductible but high co-pay and coinsurance plan can do so but they can’t offer a scratched mirror version of that plan which costs eighty seven cents more per month. Instead they can offer a barebones gold, a middle gold and a high gold plan at 76, 79 and 82% actuarial value. An insurer could also offer a skinny network and a big network with no gatekeeping where the benefits are the same but the network is the premium difference driver.

I think doing this will minimize the number of counties with 150 or more choices while still allowing insurers to offer plans that actually have value beyond throwing decision making for a loop.

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