Op-ed: Healthcare policy and the challenge of inertia

California’s Health Insurance Marketplace, Covered California, began its 2020 open enrollment period on October 15th and will continue through January 31st. It is an exciting year for the Marketplace. More generous subsidies are available for Californians this year, overall premiums are only increasing by 0.9%, and three insurers are expanding into new markets. However, it is not entirely clear that Covered California enrollees are enjoying the full benefits of a competitive health insurance market.

Would you pay an extra 1,000 dollars per year just to keep your current healthcare plan, even if a nearly identical option was available? Odds are, if you get your insurance through your employer or privately, the answer is likely yes.

My colleagues Conor Ryan, Bryan Dowd, and I estimate in new research for the Center for Growth and Opportunity at Utah State University that enrollees in the largest Insurance Marketplace in the country, Covered California, are willing to pay roughly $1,000 per year just to keep their current health plan and avoid the hassle of switching plans. While this number may seem unbelievably large, it is actually less than estimates from other insurance markets.

So why are Covered California enrollees willing to pay so much to stick with their plan? One reason is that enrollees may want to make sure their doctor remains in their plan’s network. Another is that enrollees do not take the time to examine what other health plans are available to them, referred to as inattentiveness. The hassle cost of switching health plans – which can be a stressful, psychologically burdensome process – is another barrier.

Better known to economists as inertia, this phenomenon occurs when health plan enrollees are more likely to stick with their health plan from year to year, even when market conditions change, and better options may be available.  High levels of inertia can make the health plan market less competitive, resulting in higher premiums.

We found that the first two sources of inertia—wanting to keep their network and inattentiveness – account for the lion’s share of total inertia. The large role provider networks play in inertia is a growing problem because purchase of physician practices by large integrated delivery systems is making it harder for enrollees to switch plans and keep their doctor.

The role of inattention also is problematic. When a health plan exits the market, enrollees are forced to pay attention to alternatives, but very few insurers exited the Marketplaces in 2020, making it easier than ever for enrollees to automatically re-enroll in their plan without considering other options. If, as this trends suggests, inertia becomes a more powerful force in the Marketplaces, insurers will have less of an incentive to offer enrollees more affordable, high-quality health plans.

Reducing inertia starts with identifying the primary sources of inertia that policymakers should target: Enrollees wanting to keep their provider networks and being inattentive. One way to sever the link between inertia and enrollees’ desire to keep their doctor is requiring insurers to provide in-network coverage for providers they list as being a part of their network. Although enrollees can verify whether their doctor is included in different health plans’ networks on the Covered California website, many enrollees are aware that insurers’ network directories are inaccurate and may change at any time during the year. A legal requirement that insurers cover providers they list network directories would make it considerably easier for enrollees to confidently switch health plans without fearing that they will lose access to their doctor.

Strategies to reduce inattention tend to rely on interventions to make enrollees aware of their other health plan options. In one study, researchers studying Colorado’s Marketplace sent letters to enrollees letting them know about the potential savings they could obtain from switching health plans, which caused enrollees to consider their other health plan options. And researchers studying Covered California successfully used low-cost informational interventions to increase enrollment in Covered California.

What remains unknown, however, is what types of interventions cause Marketplace enrollees to shop for other health plans and switch to another health plan when a better option is available. Given the large role of inattention in the Marketplaces, more research is needed to determine exactly what kind of interventions—letters, information campaigns, or electronic enrollment support—can reduce inattention.

Covered California has been an immensely successful Marketplace. By several measures, including cost control, competition, and diversity of plan offerings, it is the most well-functioning Marketplace in the nation. As policymakers and administrators continue their efforts to improve Covered California and other Marketplaces, addressing the underlying causes of inertia will be an important component of the Marketplaces’ future successes.

CGO scholars and fellows frequently comment on a variety of topics for the popular press. The views expressed therein are those of the authors and do not necessarily reflect the views of the Center for Growth and Opportunity or the views of Utah State University.