Economics Research Seminar | Weatherhead School at Case Western Reserve University

Economics Research Seminar

Do Individuals Make Sensible (Health) Insurance Decisions? Evidence from a Menu with Dominated

The economic rationale for recent expansion in health plan choice presumes that individuals are able to sensibly choose from available options. We test this presumption by assessing the quality of over 50,000 health insurance decisions from a U.S. firm which permitted employees to “build” their own plans from a standardized menu of 48 plan options of which a large share were financially dominated. The menu offers a unique litmus test for evaluating choice in that no set of standard risk preferences or beliefs regarding future health can rationalize enrollment into dominated plans. We find that a majority of employees choose dominated options, resulting in excess spending equivalent to an average of 42% of the annual plan premium. Employees fail to improve plan choice over time, and older workers, women, and low earners were disproportionately likely to make costly errors in choice. We then report findings from follow-up hypothetical choice experiments which suggest that while search complexities may have modestly contributed to poor choice, such choices are more fundamentally due to a lack of understanding of basic health insurance concepts. We find that plan selection is ultimately consistent with a heuristic choice strategy whereby individuals sort into available plans based on crude self-assessments of health and the configuration of plan menus rather than a careful evaluation of the financial value of plan options. Our results challenge the standard practice of inferring risk attitudes and from insurance choices and raise doubts as to whether recent reform will deliver on its promised benefits.

Please join the Economics Department for a research seminar.  This event is open to all Case Western Reserve University faculty, Ph.D. students, economic majors and minors, and those interested in economics research.
Contact Information:

Teresa Kabat

Wednesday, March 25, 2015 from 3 p.m. to 4:30 p.m.
Peter B. Lewis Building
11119 Bellflower Road, Room 501
Cleveland, OH 44106-7235
United States
Speaker(s): Saurabh Bhargava, Ph.D., Carnegie Mellon University
Sponsored by: Economics Department


Related Events

Loading events…

For undergraduate programs: learn more information here or apply now. For graduate programs: request more information or apply now. You can also register for one of over 70 open enrollment courses through Executive Education.

Weatherhead School of Management at Case Western Reserve University cultivates creativity, innovation, and purpose-driven leadership to design a better world.