Do Ordeals Work for Selection Markets? Evidence from Health Insurance Auto-Enrollment

Mark Shepard and Myles Wagner

American Economic Review, 2025, vol. 115, issue 3, 772-822

Abstract: Are application hassles, or "ordeals," an effective way to limit public program enrollment? We provide new evidence by studying (removal of) an auto-enrollment policy for health insurance, adding an extra step to enroll. This minor ordeal has a major impact, reducing enrollment by 33 percent and differentially excluding young, healthy, and economically disadvantaged people. Using a simple model, we show adverse selection--a classic feature of insurance markets--undermines ordeals' standard rationale of excluding low-value individuals since they are also low-cost and may not be inefficient. Our analysis illustrates why ordeals targeting is unlikely to work well in selection markets.

JEL-codes: D82 G22 H75 I13 I18 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1257/aer.20231133

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