The myth of health insurance choice

“Choice” has taken center stage as Democratic candidates spar over “Medicare for all” versus fixing the Affordable Care Act (ACA) and keeping private insurance. There are compelling arguments in favor of each. But the argument that preserving private insurance promotes choice is not one of them.

In the first two rounds of Democratic debates, several candidates defended a position other than Medicare for all in the name of choice.

Former congressman Beto O’Rourke said in the first debate, “I think that choice is — is fundamental to our ability … to get everybody cared for,” and contended that people should be able to choose Medicare or remain in a union-negotiated plan. South Bend, Ind., Mayor Pete Buttigieg called for “Medicare for all who want it.”

Former Vice President Joe Biden took a similar position, and now is wielding choice as a weapon against Sen. Bernie Sanders (I-Vt.), a leading proponent of Medicare for all. Biden’s health care proposal centers on “giving Americans a new choice, a public health insurance option like Medicare.” Sen. Kamala Harris (D-Calif.) has tried to distinguish herself from Sanders by introducing the choice of private Medicare plans into Medicare for all.

These choice-venerating statements all assume that people will make good choices among options and be better off as a result. But we know that people do not like shopping for health plans and that most of us are not good at it, for a number of reasons.

First, half of Americans lack the basic literacy and numeracy skills to navigate the options. Even college-educated people show surprisingly high levels of error on simple arithmetic tests.

Second, most people do not understand the basic features of health insurance plans that should shape their decisions — such as how much a plan costs, what benefits are covered, and what doctors they can see. In a survey of insured adults, only 14 percent correctly answered four simple multiple-choice questions about cost-sharing features, such as a deductible. However, people overestimated their understanding of these insurance concepts, which suggests many would not seek help or education even if offered.

Third, even people with adequate skills and knowledge get tripped up because health insurance has characteristics that impede good decision-making. People are overly optimistic about their own health. People also struggle to factor risk into decision-making — an element central to health insurance choices. This is why young, healthy people forgo health insurance, even if it’s cheap.

Not surprisingly, studies have documented that people choose poorly among health plan options, even when there is a clearly superior choice.

One study simulated the purchase of an ACA plan, using participants who passed a screening test for basic insurance literacy. Yet, these more-knowledgeable-than-average participants selected the best choice only about half of the time. Even Wharton business school students got it wrong one-quarter of the time.

Among enrollees in the University of Michigan employee plan, over one-third enrolled in a plan that was identical to another option in every way, except that it had a more restricted provider network. There is no scenario in which someone would be better off in this plan, yet a large number of employees “chose” it. Another study of a large U.S. firm found that a majority of employees chose an option where they paid 24 percent more in premiums than they should have. Even worse, lower-income employees more often made a bad choice.

Studies of Medicare suggest three-quarters of enrollees or more could have chosen a less expensive private prescription drug plan.

On the ACA marketplaces, people often choose plans that cost them more in the long run. More than 2 million ACA enrollees chose plans with the lowest monthly premiums, but that made them ineligible for cost-sharing subsidies to lower deductibles and copayments when they use care. These buyers may not know that the plan they chose will cost them more in the long run, or they might not be able to stomach a dollar more in premiums. Either way, this is not a picture of meaningful choice.

If people do not navigate health insurance options well, why are some candidates advocating for preserving — or increasing — options?

The confusion might be benign, and it probably is for at least some of the candidates. Choice has become a sacred American value. Candidates may be reacting to an idea that they think will poll well and be more feasible politically. 

For some candidates, choice is a gap filler, creating an option for people who have none now. For others, it may be the smoother path to Medicare for all. They contend that if a “public option” based on Medicare is better, eventually everyone will choose it — a fact that research belies. 

But the elevation of choice also can be harmful. Choice can be a euphemism for preserving inequity. People with gold-plated health plans through their employers keep them, while others — including many with ACA marketplace plans — struggle to afford health care even when they have insurance.

Choice certainly can be meaningful when it comes to health care. Being able to choose a good, caring doctor convenient to home or work is important to most Americans. For many Americans, reproductive choice is critical. But for most Americans, choosing a health plan is not, in and of itself, meaningful. 

What Americans want is equitable, high quality, affordable health care. That’s where the candidates should focus their efforts and their arguments, whatever policy they promote.

Allison Hoffman teaches health law and health law reform at the University of Pennsylvania Law School, where she is also a senior fellow of the Leonard Davis Institute of Health Economics. She is co-editor of the Oxford Handbook of U.S. Health Law, which offers the most comprehensive review of U.S. health law in the post-ACA era.