Health Insurance for "Humans": Information Frictions, Plan Choice, and Consumer Welfare

• Published in: The American economic review Vol. 105; no. 8; pp. 2449 - 2500
• Main Authors: Handel, Benjamin R., Kolstad, Jonathan T.
• Format: Journal Article
• Language: English
• Published: United States American Economic Association 01.08.2015
• Subjects: Adverse selection; Brand loyalty; Choice Behavior; Consumer Behavior; Consumer choice; Consumer information; Consumer surveys; Consumers; Decision making; Deductibles and Coinsurance; Economic models; Estimates; Health Benefit Plans, Employee; Health care policy; Health insurance; Health technology assessment; Humans; Inertia; Insurance, Health; Medical Savings Accounts; Medicare; Meetings; Modeling; Models, Theoretical; Moral hazard; Political economy; Polls & surveys; Preferences; Preferred Provider Organizations; Risk aversion; Risk preferences; United States; Welfare economics
• ISSN: 0002-8282; 1944-7981
• DOI: 10.1257/aer.20131126

Traditional models of insurance choice are predicated on fully informed and rational consumers protecting themselves from exposure to financial risk. In practice, choosing an insurance plan is a complicated decision often made without full information. In this paper we combine new administrative data on health plan choices and claims with unique survey data on consumer information to identify risk preferences, information frictions, and hassle costs. Our additional friction measures are important predictors of choices and meaningfully impact risk preference estimates. We study the implications of counterfactual insurance allocations to illustrate the importance of distinguishing between these micro-foundations for welfare analysis.