Association for Public Policy Analysis & Management

There is a growing literature examining the role of defaults and ensuing “inertia” in individual decision making and its impact on both individual and social welfare. Several papers have focused on choice inconsistencies in health plans. Here inertia can be defined as enrollees failing to leave their current health plan even though they have the ability to change plans, a better plan is available, and the cost of switching is low. In this paper we examine a population not previously studied, low income individuals choosing among Medicaid managed care plans. We first demonstrate that we are observing health plan inertia and then assess the implications for enrollee health care utilization, health outcomes, and program spending. The specific context that allows us to perform this analysis is the recent introduction of statewide Medicaid managed care plan choice in Kentucky. All Medicaid enrollees within Kentucky were automatically enrolled into one of three private Medicaid managed care plans in November 2011 and were given 90 days to opt out of their assigned plan and into another. Each plan was operated by a separate private Managed Care Organization (MCO) with experience in operating such Medicaid plans in multiple states. Using administrative Medicaid data for 2010-2012, we observe the extent to which enrollees opt out of their assigned plan and then how many opt out during the next open enrollment period. This data allows us to differentiate between inertia in plan choice and good matches between enrollee and plan generated by the auto-enrollment process. Preliminary results suggest that the auto assignment process employed by Kentucky Medicaid generates a considerable amount of plan inertia – at least 30% of enrollees stick with inferior plans over the course of several years.