Alan Leafman, middle, President of Health Insurance Express, Inc., helps Raquel Bernal, right, and her husband John Bernal, left, both of Apache Junction, Ariz., navigate the nation's new health care insurance system online at the Health Insurance Express store on Tuesday, Oct. 1, 2013, in Mesa, Ariz. | Ross D. Franklin/AP Photo

Political Science

Are Our Brains Just Not Wired for Obamacare?

Since the launch of the Affordable Care Act’s health insurance exchanges on Oct. 1, frequent glitches and long waits have dominated the news coverage. But these reports—while frustrating the Obama administration and delighting its opponents—distract from a far more important question: Are consumers doomed to make poor choices about health plans? Maybe our brains just aren’t wired to use a site like, whether it works or not.

The exchanges are based on a laudable idea: that competition, transparency and consumer choice will lead to higher-quality, more affordable products. The decisions consumers make will thus have significant implications for their own personal and financial health, as well as the overall sustainability of the exchanges. But despite the good intentions behind the website, behavioral science research suggests that many consumers may be ill equipped to make good decisions in the insurance marketplaces.

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Choosing health coverage is particularly challenging. Humans have difficulty making optimal choices under conditions of uncertainty, when weighing probabilities of long-term risks and benefits, and when analyzing complex products with multiple components of unclear relative values. We’re bad at assessing the likelihood of low-probability events, like winning the lottery or getting in a car accident. We overestimate our ability to repay loans and spend more with credit cards than we would with cash. We struggle with decisions about how to invest our retirement savings and are highly susceptible to the number and types of 401(k) plans we’re offered. In short, we have trouble with precisely the types of issues involved in choosing the right health coverage.

Under these circumstances, a buffet of choices can quickly lead to “choice overload”—when people with more choices make suboptimal decisions, are less satisfied with those decisions and might refrain from deciding at all. In one famous behavioral science study, researchers set up a stand with either six or 24 flavors of jam in a grocery store to test how customer preferences changed when more choices were offered. The results were striking: While somewhat more people stopped to taste when 24 jams were displayed, customers were 10 times more likely to actually select and buy a jam when six jams were shown. Having a vast array of choices can pique interest, it seems, but it also can dull customers’ motivation to actually buy the product.

Strawberry preserves are one thing; health insurance is quite another. But evidence from Medicare and Medicaid also supports this theory. One recent study found that Medicaid-eligible individuals in California with multiple plan options were significantly less likely to enroll than those with just one option. Another study found that Medicare Part-D beneficiaries with more choices are less likely to identify low-cost, high-value plans. These individuals placed more weight on premiums than out-of-pocket costs, and ended up paying extra. This tendency to overvalue salient features like premiums at the expense of other aspects of the plans might be particularly relevant for exchange enrollees, given the media’s obsession with exchange premium rates in recent months.

In complex environments, it is helpful for people to have heuristics, or rules of thumb, to guide decisions. That’s where the ACA’s metals system comes in. The bill requires plans sold in the exchanges to be arranged into four levels of actuarial value (meaning the average share of total health care expenses a plan covers for its enrollees). Individuals enrolled in more generous gold or platinum plans can expect insurers to pick up 80-90 percent of medical expenses but will pay higher premiums up front, while those in silver or bronze plans pay lower premiums and more out-of-pocket. The metals system provides consumers with a familiar, vivid, easy-to-understand hierarchy that organizes dozens of disparate plans into four neat buckets.

But actuarial value gets us only so far. It represents what the average enrollee can expect to pay. Two individuals in the same plan might spend vastly different amounts depending on their utilization of health services. Similarly, two plans of similar actuarial value can result in very different out-of-pocket spending for the same individual, depending on the cost-sharing structures of those plans.



None of this is to say the exchanges are not a good idea or that they won’t work well. But it does mean we should take steps to ensure consumers have the right support, education and protections as they make these decisions. Exchange “navigators” —who are trained to distribute impartial information regarding plans, walk people through options, and facilitate enrollment—could play a particularly important role here. Evidence from the Commonwealth Fund study above suggests that these navigators may be more effective if they use concrete, numeric examples to help consumers compare plans than if they explain terms abstractly. Unfortunately, many states are doing all they can to restrict access to navigators, leaving their residents without the guidance they need to make informed choices.

Another strategy to ensure exchanges run effectively is soliciting frequent feedback from consumers. Consumer testing will allow states to understand what information is helpful or confusing, how best to present choices and what products consumers prefer. Research from the Massachusetts experience provides some important insights. Consumers prefer a manageable number of choices that differ from one another meaningfully. In Massachusetts, that number seems to be four to six plans at each benefit level. Simply having more plans without significant differences adds little value. Exchanges may thus want to take an active approach that works with insurers to design appealing products rather than passively accepting all-comers. While individuals in other states may differ in their preferences, all states should vigorously seek consumer feedback.

Americans are now making decisions about health coverage on an unprecedented scale. The insurance marketplaces may well make good on their promise of affordable, quality health coverage. But this will require setting aside our political biases, and addressing our psychological ones.

Dhruv Khullar is a dual-degree candidate at the Yale School of Medicine and Harvard Kennedy School, where he is fellow at the Center for Public Leadership. Follow him @DhruvKhullar.