Sources of inertia in the individual health insurance market

Coleman Drake, Conor Ryan and Bryan Dowd

Journal of Public Economics, 2022, vol. 208, issue C

Abstract: Consumers in private health insurance markets are highly inertial. The literature has repeatedly found consumers are willing to pay thousands of dollars to keep their health plan. However, the causes of inertia are not well understood, despite their importance in determining whether welfare can be improved by reducing inertia and which types of policies would be effective in doing so. Using administrative data from California’s Health Insurance Marketplace, we separately identify three sources of inertia—tastes for provider continuity, inattention, and hassle costs—using two-stage models of inattention and health plan choice. We find that eliminating inattention and hassle costs would reduce repeated health plan choice by 53 percentage points and that interventions to reduce inattention and hassle costs are complements. Inattention and hassle costs cost consumers over a billion dollars in foregone consumer surplus in 2018, roughly $1,790 per household per year or half the annual premium paid by the median household, with inattention accounting for the largest source of forgone surplus. We conclude that interventions to reduce inertial plan choice should jointly focus on hassle costs and particularly inattention, but not tastes for provider continuity.

Keywords: Health insurance; Inertia; Attention; Switching costs; Health insurance marketplace (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:208:y:2022:i:c:s004727272200024x

DOI: 10.1016/j.jpubeco.2022.104622

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