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NC’s Health Marketplace under the Affordable Care Act: Is too much choice a bad thing?

Guest blogger Zarak Khan is writing a series of pieces for the Pulse about issues surround the new marketplace for health care under Obamacare.  After NC’s decision not to set up its own marketplace and reject federal money available for Medicaid, the marketplace or health exchange in NC will be run by the federal government.  People who don’t get health insurance through their work can get tax credits to buy affordable private health plans in the marketplace.  There are pretty important issues as to how this marketplace gets set up however.  The one Khan tackles this week is counterintuitive:  What the adverse effect might be of  having a choice of too many health plans in NC’s marketplace.

From Zarak Khan:

Last month, The Atlantic published “A Million First Dates,” which included the story of Jacob, a recently single man in his early thirties who discovers online dating. After years of struggling to find the right woman, Jacob finds himself in an unusual position–he’s simultaneously dating several women he’s attracted to and finds interesting. His newfound options makes it more difficult to settle down. A new world of opportunities is open to him and he takes full advantage of it–with one downside. “Maybe I have the confidence now to go after the person I really want,” he says. “But I’m worried that I’m making it so I can’t fall in love.”

Jacob is not alone in this struggle. In fact, although we are conditioned to believe that freedom of choice means more choices leads to better decisions, most people freeze up in the face of too many options. A study by Sheena Iyengar tested this hypothesis by offering people different types of jam. She found that, though more jam options enticed more shoppers to browse, fewer people actually purchased when more jams were available.

This tasty test illustrates the point that more choice is not necessarily better. In fact, it often leads to what behavioral economists call ‘choice overload’, a barrage of options that leaves the consumer unable to make a good decision.

Iyengar hypothesizes that two factors can further exacerbate choice overload. First, the importance of the decision. That is, if making the ‘wrong’ choice will have a significantly negative impact. And secondly, if substantial time and effort are required to make an informed decision. Clearly, both of these factors are present when choosing health insurance.

While a bad choice of jam might only ruin breakfast, the stakes are much higher for insurance or retirement. Retirement was the subject of another Iyengar study which looked at 800,000 employees and their choice of and satisfaction with a 401(k). The study found that as options increased, participation decreased. Controlling for a range of factors, participation dropped by approximately 1.5 percent to 2 percent for every ten funds added.

This offers a reasonable comparison to insurance because it involves a series of choices, the details of which many people will struggle to comprehend. Each retirement plan contains various permutations of mutual funds, stocks, insurance companies, and other investment opportunities. Plus the decision of how much to regularly contribute to the plan. In short, choice overload will be a real issue for people purchasing through a health insurance exchange–not necessarily due to non-participation (because coverage is mandated) but because people are not likely to understand or consider all their options.

10 Comments

  1. Doug

    March 20, 2013 at 9:55 am

    Only on a socialist site would the use of the free market and making a decision for yourself be a bad thing.

    Of course the way the progressives have run schools, it is not surprising that people are no longer able to think for themselves. That has been the whole point of progressivism/socialism. Just let them rely on the government to make the decision for him.

  2. gregflynn

    March 20, 2013 at 1:35 pm

    There have been some sad right wing comments here but this one ranks among the most pathetic I’ve seen in a while. It’s like a parody of Stephen Colbert.

  3. Adam Searing

    March 20, 2013 at 2:19 pm

    Yeah – whatever intern using the “Doug” name this week really has lost it today!

  4. Richard Bunce

    March 20, 2013 at 10:31 pm

    More choice is always better than less choice.

  5. Jo

    March 21, 2013 at 12:18 am

    Doug and Richard are obviously interested only in rhetoric, not research. Sad, but typical.

  6. Richard Bunce

    March 21, 2013 at 8:59 am

    Jo, solutions not limits. Better tools to aid customers in reviewing the choices and finding the best plan for them. Just because you cannot handle many choices does not mean everyone else should be limited in their choices.

  7. Jo

    March 21, 2013 at 3:49 pm

    Richard, you have no idea who I am or what kinds of choices I can handle and it’s silly to make that assumption. You are spouting dogma with no evidence. Show me the research that proves that more choice is always better. Zarak has cited credible research for his article — where’s yours? Besides, all he did was raise the question and delineate some of the issues that will quite probably arise. He never said that choices should be limited — that was another assumption made by the conservatives who have responded.

  8. Richard Bunce

    March 21, 2013 at 5:40 pm

    Jo, So YOU can handle all those possible choices, it’s just all THEM other people who cannot…

    “This offers a reasonable comparison to insurance because it involves a series of choices, the details of which many people will struggle to comprehend.”

    The “stupid American” theory at work… good thing we have folks like you to look out for us all.

    This is the authors MO… he doesn’t come out and state his conclusion, he just provides statements that would lead a reader to only one conclusion about his conclusion… Choice is bad (single payer), many people will make bad choices (Medicare 4 All), us enlightened few need to step in and save them from themselves (Greater Good).

  9. Jo

    March 21, 2013 at 7:27 pm

    Once again, Richard…blah, blah, blah and no evidence or research of any kind. Personal attacks with no substance whatever. As I said, typical conservative blather. Do you get paid to rant like that on progressive sites? I can’t think of another reason for you to troll this page.

  10. Richard Bunce

    March 22, 2013 at 10:12 am

    Jo, libertarian not conservative… I am for limited government across the board not just when it is convenient as progressives and conservatives support it. I have decades of real life experience. I suppose you find that 20 years ago having a choice of one store with limited products and no price competition was better than today having a world of merchants at your fingertips… too much choice is bad!