What Do Consumers Do When They Select Health Insurance Plans?
Type
conference paper
Date Issued
2025-09-15
Author(s)
Abstract
Inertia is widespread in health insurance markets, partly due to default options and limited
consumer engagement. This paper examines what prompts consumers to switch plans despite
the presence of a default option. We identify three main triggers: rational inattention,
learning behavior, and health shocks. Using Swiss administrative data and a linked health
survey, we first compare the plan choices of new and existing enrollees to quantify inertia:
default effects increase suboptimal plan selection by 14 percentage points. We also find
that inertia emerges immediately upon market entry. Among new enrollees, we find that
consumers facing greater decision complexity are less likely to select optimal plans, consistent
with choice attenuation evidence. Second, by tracking the choice patterns of new enrollees
and comparing them with those of existing enrollees, we discover that learning does not
enhance active switching behavior; however, learning and switching for existing enrollees
saves more than new enrollees. That is, the most effective learning comes from switching
behavior over the years instead of learning about the market. Later, using a survey linked to
administrative data, we examine experiencing a health shock leads consumers to update their
self-reported health status, which in turn increases their switching rate by 7.5 percentage
points, in contrast to a 5-percentage-point increase otherwise.
consumer engagement. This paper examines what prompts consumers to switch plans despite
the presence of a default option. We identify three main triggers: rational inattention,
learning behavior, and health shocks. Using Swiss administrative data and a linked health
survey, we first compare the plan choices of new and existing enrollees to quantify inertia:
default effects increase suboptimal plan selection by 14 percentage points. We also find
that inertia emerges immediately upon market entry. Among new enrollees, we find that
consumers facing greater decision complexity are less likely to select optimal plans, consistent
with choice attenuation evidence. Second, by tracking the choice patterns of new enrollees
and comparing them with those of existing enrollees, we discover that learning does not
enhance active switching behavior; however, learning and switching for existing enrollees
saves more than new enrollees. That is, the most effective learning comes from switching
behavior over the years instead of learning about the market. Later, using a survey linked to
administrative data, we examine experiencing a health shock leads consumers to update their
self-reported health status, which in turn increases their switching rate by 7.5 percentage
points, in contrast to a 5-percentage-point increase otherwise.