Indiana University SPEA Edward J. Bloustein School of Planning and Public Policy University of Pennsylvania AIR American University

Panel Paper: Using Behavioral Economics to Improve Medicare Plan Choice: A Randomized Experiment

Friday, November 13, 2015 : 10:55 AM
Tuttle South (Hyatt Regency Miami)

*Names in bold indicate Presenter

Abigail S. Friedman, Yale University and Richard G Frank, U.S. Department of Health and Human Services
Research has shown that several behavioral economic tendencies—salience, choice overload, and defaults—compromise consumer choice of health insurance plans. In a new randomized experiment, we test whether these same tendencies can be applied to redesign Medicare plan materials in a manner that makes it easier for consumers to choose the plans that are best for them. A sample of 557 soon-to-be Medicare enrollees from Middlesex County, Massachusetts were randomized to receive county-specific plan information for the 2015 enrollment period in one of three formats: as presented in the state’s Medicare And You publication (Control), a reformatted version of the control designed to enhance the salience of total expected costs (Salience Treatment), or the control materials alongside a short-list of the five lowest expected cost plans for the respondent’s health status (Choice Overload Treatment). Respondents were asked to identify the Medicare Advantage plan they believed would be best for them, and whether they would select that plan over Original Medicare, with surveys conducted within three weeks of Medicare’s open enrollment period to increase the likelihood that hypothetical answers reflect actual behavior. 

The salience treatment yielded a statistically significant 11 percentage point increase in the likelihood of choosing a Medicare Advantage plan over the Original Medicare default. While the choice overload treatment produced a 6 percentage point increase in Medicare Advantage choice, this effect was statistically insignificant. Analyzing expected total costs by health status, both treatments yielded plan choices costing approximately $14 less per month than the control group.

An additional experimental arm combined the salience and choice overload treatments into a single intervention, and tested this with a sample of current Medicare enrollees. This combination-treatment generated a statistically significant 13 percentage point increase in the likelihood of switching to a new plan.

These results show that behavioral economics can be leveraged to shift consumer choice in Medicare, simply by redesigning plan information materials and without limiting respondents’ choice sets.