Why Most People Won't Shop Again for Health Insurance

You may have noticed when you last subscribed to a magazine that the company put you on an automatic renewal plan. Instead of sending you a letter when your subscription was about to lapse and asking you to take steps to renew, most now keep your credit card on file and keep extending your subscription unless you take steps to stop it.

In general, people have a bias toward the status quo - and a bit of laziness. That's why similar auto-renewal policies are showing up all over the place, in public radio memberships, say, and gym memberships (and for subscriptions to The New York Times). For most businesses, it pays if the default option is that you remain their customer.

Auto-renewals are also a key feature of the Affordable Care Act's insurance marketplaces. People who want to come to a website and review their options every year have been encouraged to do so. But, just in case they don't, most people will simply be kept in their existing plan or shifted to one that's similar if they take no action. The auto-renewals will happen on Monday for any customer in the federal marketplace who doesn't actively pick a plan, and will become final if they don't act by Feb. 15.

Evidence suggests that most people will go the default route, despite the pleas of government officials and multiple analyses suggesting that people who shop around will get better deals.

The same forces that lead people to stick with an expensive cellphone plan or to watch the television program that follows their favorite show come into play with health insurance. But inertia is even stronger when it comes to insurance than many other markets, because people find shopping for a health plan to be so confusing and unpleasant. There are also real trade-offs in changing health insurance - a better premium may come at the cost of your favorite doctor, for example. For many consumers, sticking with what they have may just be easier than doing all that work and taking on the risks of switching.

My colleague Abby Goodnough reported on the experiences of insurance customers in Phoenix. Steve Norton, a 51-year-old man recovering from a stroke, told her he wouldn't be shopping for a new plan this year. 'If it's working, why try to fix it?' he asked.

There are currently about 6.7 million people with federal or state marketplace health plans, according to government estimates. As of Dec. 5, only 720,000 people in the 37 states using the federal enrollment website have returned to the site to select a 2015 plan.

There are a lot of reasons returning to shop for a plan pays. For one, there are some good bargains for returning customers in many markets. In a recent report, the Obama administration estimated that more than 70 percent of returning customers will be able to find a cheaper plan in the same category as the one they currently have. The Upshot's interactive map, which looks at the most popular plan from 2014, gives a good visual summary of the trend: In nearly every market in the country, it pays to shop for a new plan if you want a lower premium.

But even people who are concerned about things other than premiums have reasons to shop. As Charles Ornstein, Ryann Grochowski and Lena Groeger reported in The Upshot, many plans being sold under the same name are undergoing changes to their deductibles, co-payments and other features. Customers who auto-renew will miss a chance to review those changes.

There are also possible tax consequences. By law, the subsidies many people are receiving to help them pay their premiums need to be recalculated every year. But the federal government won't be recalculating those subsidies for people who auto-renew. That means that some people will end up overpaying for insurance, while others will underpay and face a big surprise bill at tax time.

But despite all this, there's good reason to think that very few Obamacare customers who picked a plan for 2014 really will come back.

'People don't go back and choose again,' said Robert J. Town, an associate professor of health care management at Wharton. 'And that's why they end up in a bad plan.'

Mr. Town has looked most closely at the evidence from the Medicare prescription drug program, known as Part D. Like the Affordable Care Act, Medicare Part D uses an online marketplace where private plans compete on price and features. People can switch plans every year if they want; if not, they will default into a renewal option. Fewer than 10 percent of customers switch every year - and studies have shown that many end up in a plan that isn't a good match for their needs, even if it was at first, because either the plan, or the person's health care needs, changed over time.

In focus groups, Medicare Part D customers told researchers that they were aware of the open enrollment periods and the wide variety of choices because of a flood of marketing materials. But they still experienced a high degree of 'stickiness,' or reluctance to shop around, according to a brief published by the Kaiser Family Foundation. 'Choosing plans is an unpleasant task they try to avoid,' the study said.

There's even evidence that insurance companies price their Part D plans based on an assumption of consumer inertia. According to a study by Keith Marzilli Ericson, an assistant professor at the Boston University School of Management, insurance plan pricing behavior is consistent with a strategy of 'invest then harvest,' in which plans for new customers are priced low, and existing plans increase in premium every year. 'It can be overwhelming,' Mr. Ericson said. 'If you make the choice really, really complex, people tend to back away.'

You can see a similar pattern of low switching in the Federal Employees Health Benefit Program, which allows federal workers to shop among health insurance options, and in the Massachusetts market before the introduction of the Affordable Care Act. About 12 percent of federal employees switch plans each year, and only 7 percent of people enrolled in the Massachusetts Commonwealth Care program.

Economists who study consumer behavior say that familiar forces - inattention and procrastination - lead people to opt for default options in many settings. But selecting health insurance is the type of transaction that makes people particularly reluctant to shop again. There's evidence that infrequent transactions, like a plan you only change once a year, lead to less shopping around. People are most likely to avoid changes when there are costs, like, say, changing doctors. And people are more prone to avoid decisions about complex transactions.

'You're more likely to stick with the choice you've already made if you're not sure you're going to benefit from switching,' said Benjamin Handel, an assistant professor of economics at the University of California, Berkeley, who has studied inertia in employer health plans. Mr. Handel's research found that workers were losing as much as $2,000 a year by staying in their insurance plans.

It's possible that Obamacare will be different, and more people will be motivated to shop. Its customers tend to have low incomes, and the premiums for the plans are higher than those of the Medicare drug benefit, meaning that price increases may send more customers back to the market. But there's also reason to worry that people will be disinclined to shop again this year, if only because they had a particularly bad experience with the federal exchange website last year.

It's clear that the Obama administration is concerned that a high number of auto-renewals could disrupt the law's basic policy structure, which relies on price competition between the companies to keep insurance affordable. If few people are actively shopping each year, there will be little incentive for the companies to keep their premiums low.

That's why they've proposed switching the defaults. Beginning in 2016, some states may allow consumers to pick a default option that would mean switching them to a cheaper plan instead of just staying in their current one. That plan would let inertia help fight price creep, but it could create other disruptions, when consumers find themselves signed up for a plan they didn't pick. That is, of course, assuming that consumers would choose an option that fights inertia for them.