Consumer Choice in Health Insurance Markets Under the Affordable Care Act

If you’ve never had to shop for health insurance, consider yourself lucky. Between searching for affordable premiums, making sense of co-pays and coinsurance, and finding a plan with your favorite doctor, choosing a good health plan can be a daunting task. As a health policy student, I tried my hand last month at choosing a plan on the North Carolina exchange. Despite being well-versed in insurance concepts, I too struggled to figure out which plan would be best for me among the many options.

The Affordable Care Act (ACA) has been successful in its goals of increasing access to health insurance while preserving choice and competition in health insurance markets. It brought nearly 11 million people into the individual market who previously didn’t have insurance, and it offered them a variety of health insurance options to choose from. Despite achieving such historic milestones, however, it remains to be seen what the future might hold for the ACA. Until then, policymakers must continue working to make the process of buying insurance easier for the average American.

Persistent Barriers to Consumer Choice
As I learned firsthand, insurance is a fundamentally complex product that requires consumers to make high-stakes tradeoffs regarding their health and finances. Most people do not have consistent experience purchasing health plans, unlike other commodities. In fact, 57% of shoppers (myself included!) in the ACA exchange were purchasing health plans for the first time.

Moreover, research increasingly suggests that too many choices can overwhelm the average shopper. Too many options may actually lead consumers to choose inferior products, delay decision-making, or not make a choice at all. For instance, depending on what state you live in, you could see anywhere from two to 67 silver plans. North Carolina in particular has a plethora of plans, because the state lets any plan that meets basic requirements be listed on the exchange. The result is more choice at the expense of shoppers not being able to meaningfully differentiate between plans.

Consumers facing these barriers may put themselves at financial risk by choosing plans that are more expensive but have less generous coverage. It’s not hard to see why—after I read through six or seven plans, I had a hard time picking out differences between them. Not only are there costs to consumers, but also to the federal government, which subsidizes a majority of individuals in the exchanges and may spend more on subsidies for costly plans.

Don’t get me wrong—the ACA exchanges improved on an important product where there were serious flaws before. Consumers now have a one-stop platform to compare and select plans based primarily on prices and utilization options. But there is room for improvement. I would love to use a tool that helps me pick a plan based on preferences of costs or quality, my historical or projected healthcare use, and the quality of plans and provider networks. And I shouldn’t need an advanced degree in health policy to be able to pick a decent health insurance plan for myself or my family.

Policy Proposals to Improve Consumer Choice and Decision-Making
In the coming years, policymakers will need to consider policy alternatives that can help consumers make better decisions when selecting health plans. Some examples include:

Providing consumer decision support tools
States can invest in decision support tools or resources that aid consumers in selecting an optimal plan for their needs. Some examples include out of pocket cost calculators, step-by-step summaries of how to choose a health plan, or narrative vignettes of people with different health and financial situations explaining how they chose health plans. State exchanges could also be designed to incorporate sorting and filtering options and all-plan directories to help consumers identify which plans include their preferred providers.

States can also streamline information by designing exchanges to provide summarized instead of detailed information. Additionally, consumers may respond well to some type of signal, such as “quality stars” or “blue ribbons,” to indicate high-quality or high-value plans.

Investing in outreach and education efforts
Policymakers should continue to engage with and fund consumer outreach and education efforts. In the first year of operations alone, the Centers for Medicare and Medicaid (CMS) allocated $67 million for navigators in 34 states to help first-time insurance buyers. These kind of in-person assistance programs were especially valuable for individuals with low health insurance literacy understand insurance terms and concepts.

Reducing the number or variation of plans
Policymakers can restrict the number of plans offered to consumers so that they can meaningfully differentiate among options. Other existing insurance markets can serve as examples for how states can do this. In the Medigap market, health plans are required to conform to specific plan design requirements; this could be a useful model to reduce premium variation. In the Medicare Part D market, CMS requires limited plan offerings, and thus insurance carriers typically submit one plan with basic coverage and options to enhance coverage.

Despite Republicans’ calls to repeal and replace the ACA, there will still be millions of people who need to buy insurance on the individual market in the coming years. As a result, policymakers must improve the existing infrastructure to equip consumers with meaningful information and personalized tools. When the stakes are this high, there is no reason that we shouldn’t employ the best technology and policies to help people select a plan that meets their financial and health needs.

Madhu Vulimiri is a first year Master’s of Public Policy candidate studying health policy at Duke University.

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