An auto-enrollment feature could help insurance plan enrollees who otherwise would drop out of coverage, primarily due to the "hassle cost."
A new study from Harvard University suggests that for some health insurance enrollees, the hassle of paying premiums is a barrier to maintaining health insurance—and explores an option that could keep them insured when traditional practices would have resulted in their termination from a policy.
The paper, entitled, "Can Automatic Retention Improve Health Insurance Outcomes?" looked at data from the pre-Affordable Care Act (ACA) state insurance market in Massachusetts. The paper explored the idea that for some markets, even low-cost options can lose enrollees who find the challenges of choosing plans or making payments to be a barrier to remaining insured.
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The researchers looked at cases where enrollees had lapsed on their payment of premiums. In most cases, such enrollees would be terminated from a plan, including ACA plans. But before the ACA, the Massachusetts state plan automatically re-enrolled low-income members into a zero-dollar premium plan. The Harvard study found a significant number of enrollees (14%) retained their insurance coverage through this method.
Not a surprise: Insurance is a hassle
It will be no surprise to readers of this site that health insurance can be a hassle. The Harvard study examined how this added cost of time and attention create barriers to retaining insurance in some markets. The researchers used data from the Massachusetts state plan (CommCare) to focus on decision-making among low-income enrollees. But the "hassle factor" may affect enrollees of all types of health plans, albeit in different ways.
"One of the best-established findings in behavioral economics is that people are often passive and that defaults – what happens when individuals fail to act – have a major impact on outcomes," the study noted. In this case, the researchers found a policy that re-enrolled people automatically into health plans, when previously their coverage would have lapsed due to nonpayment, resulted in a better-outcome for the state: more people covered by insurance.
"CommCare took a regulated market-based approach," the study said. "This structure puts policymakers in the position of market designers who set the rules under which insurers compete and consumers choose. Beyond standard 'incentives' policies like subsidies and benefit regulation, market designers also devise rules related to what Thaler (2018) calls 'choice architecture,' which can have a large impact on boundedly rational consumers. Thoughtful choice architecture can 'nudge' consumers towards desirable outcomes, while careless design can lead to poor outcomes."
Auto-enrollment: A trade-off
The study noted that the Massachusetts re-enrollment mechanism acted as a "backstop" in the case off enrollees who stopped paying premiums. The data suggested that only a small increase in complexity or cost could trigger enrollees to stop participating in the plan.
"One example is illustrative: a plan whose premium increased from $0 to $3 at the start of 2013," the study said. "Following this change, 24% of its enrollees auto-switch out … and another 2.5% per month switch out during the rest of the year. It is implausible that $3 per month is unaffordable; instead, this must reflect some form of hassle cost… this analysis shows that even nominal premiums can deter enrollment in low-income groups."
The researchers concluded that the auto-enrollment feature helped CommCare retain insurance plan enrollees who otherwise would drop out of coverage, primarily due to the "hassle cost."
"Our findings point to a key role for the hassle cost of paying a premium in driving lapses, rather than affordability," the study said. " 'Hassles' may reflect a variety of factors, including informational barriers (e.g., lost or unopened mail notices), the time cost of setting up online auto-payment, or the attention cost of remembering to write a check each month. Further research into mechanisms would be useful in guiding policy responses.'"
The report also acknowledged a downside to auto-enrollment in state programs—higher costs to taxpayers. "In reducing terminations, the policy increases subsidized insurance enrollment," the authors wrote. "On the one hand, reducing uninsurance is a key policy goal. On the other hand, public subsidy spending also rises. Whether that spending is 'worth it,' given benefits to the newly insured and spillover benefits to society, is a key issue animating current debate about the ACA."
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