BU Professor Explores Consumer Choice Accuracy

Boston University’s Questrom School of Business recently looked into a new study published in the Journal of Health Economics that explores how standardized health insurance plans affect consumer choice.

Titled, “How Product Standardization Affects Choice,” the study, which was co-authored by Professor of Markets, Public Policy and Law Keith Marzilli Ericson and Northwestern Professor Amanda Starc, illuminates how consumers tend to “prefer plans that were more financially generous in areas including deductibles and coinsurance.” The study found that those who enrolled “were more likely to care about the overall cost-sharing of the plan,” as well as the particular insurance brand, post-standardization.

Ericson comments on the natural selection process inherent to standardization: “Standardization leads some insurers to introduce new and exceptionally popular plans, creating clear winners and losers among the firms.”

The article explains how pre-standardization insurance “varied widely from insurer to insurer and plan to plan” but in post-standardization, insurers were “required to offer plans within seven different “tiers” of quality [that offered] the same co-pays, deductibles, out-of-pocket maximums and hospital stay costs.”

Ericson explains, “Standardization provides helpful clarity in an often confusing marketplace. [Since] consumers [are] likely to better understand their choices, their selections were likely much closer to their true preferences.”

The study can be purchased or rented now courtesy of Elsevier, which describes the duo’s work below:

This paper examines the effect of choice architecture on Massachusetts’ Health Insurance Exchange. A policy change standardized cost-sharing parameters of plans across insurers and altered information presentation. Post-change, consumers chose more generous plans and different brands, but were not more price-sensitive. We use a discrete choice model that allows the policy to affect how attributes are valued to decompose the policy’s effects into a valuation effect and a product availability effect. The brand shifts are largely explained by the availability effect and the generosity shift by the valuation effect. A hypothetical choice experiment replicates our results and explores alternative counterfactuals.

regions: Boston

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