Association for Public Policy Analysis & Management

Panel: Inertia and Transitions in Health Insurance and Health Care

(Health Policy)

Inertia in health plan choice occurs when a health plan enrollee’s probability of enrolling in a health plan is increased due to their being enrolled in that health plan in the previous year. Inertia may arise because enrollees prefer to maintain their existing relationships with medical providers, or because they seek to avoid the time costs and uncertainty inherent in selecting a new health plan. Inertia has received increasing attention from health policy researchers, particularly since the implementation of Medicare Part D, due to the deleterious effects it can have on health insurance markets. Specifically, inertia can result in decreased insurer competition over premiums and plan quality. Inertia also is problematic for researchers that do not consider it as an aspect of a plan choice. If prior choice of plan stands in for unobserved plan characteristics, then prior choice is an important omitted variable that can create bias in own-premium and own-plan characteristic elasticities.

In this session, we examine the role of inertia in three different health insurance markets: The Covered California Health Insurance Marketplace, the Minnesota State Employees Group Insurance Program (SEGIP), and Medicare Advantage. Each paper makes a distinct contribution to the literature on inertia in health plan choice, which has largely focused on Medicare Part D.

The first paper examines inertia in California’s state-based Health Insurance Marketplace, Covered California, from 2014-2018. It is, to our knowledge, the first paper that examines the role of inertia in the individual health insurance market, where both enrollees and insurers are likelier to exit the market from year-to-year than in other health insurance markets. Inertia is of particular import to this market, as decreased premium competition results in higher costs to taxpayers to pay for premium tax credits in the Health Insurance Marketplaces.

The second paper, studying the SEGIP program in Minnesota, uses a rich 15-year panel (2002-present) to examine inertia in an employer-sponsored insurance setting. The paper contributes to the literature by examining inertia over a long period (15 years). It also examines heterogeneity in inertia by health and other demographic characteristics with claims data. The paper also studies the relationship between enrollee plan choice and tiered cost-sharing that rewards enrollees for selecting more efficient primary care clinics.

The third paper considers inertia in Medicare Advantage, which complements a large literature on inertia in Medicare Part D and pertains to a market that provided 19 million Americans with insurance in 2017. The paper also separately examines inertia with respect to insurers versus plans (i.e., switching to an insurance plan provider by the same insurer or a different insurer), whereas the literature often focuses solely on the latter. Like the other two papers, the third paper considers heterogeneity in plan choice by health and other demographic characteristics. 

Preliminary results from all three papers suggest that inertia creates “stickiness” in plan choices. That is, enrollees will stick with their health plan in subsequent years even if they are offered an identical alternative that costs several hundred dollars less.