Risk-adjustment policies, which transfer money from insurers with healthy consumers to those with sick consumers, are an important tool to contend with adverse selection in health insurance markets. While the steady-state properties of risk-adjustment have been studied extensively, there is less evidence on the transition phase of policy implementation. We study the introduction and removal of risk-adjustment at California Public Employees' Retirement System and show that these changes meaningfully impact premiums via plan differences in enrollee health status. Despite these premium differences, there is limited consumer resorting due to consumer inertia, though new active enrollees respond more fluidly. We show that, with inertial consumers, risk-adjustment changes have substantial distributional consequences, leading to worse outcomes for sicker consumers when removed and vice-versa when implemented. We estimate a model of plan choice with premium sensitivity, brand preferences, and inertia and use these estimates to study the interaction between riskadjustment policies and the strength of inertia.
Despite the substantial personal and economic implications of end-of-life decisions, many individuals fail to document their wishes, which often leads to patient dissatisfaction and unnecessary medical spending. We conducted a randomized trial of 1,200 patients aged 55 years and older to facilitate advance directive (AD) completion and better understand why patients fail to engage in high-value planning. We found that including a physical AD form with paper letters as a nudge to decrease hassle costs increased AD completion by 9.0 percentage points (95% confidence interval [CI] = [4.2, 13.9] percentage points). The intervention was especially effective for individuals aged 70 years and older, as AD completion increased by 17.5 percentage points (95% CI = [5.7, 9.4] percentage points). When compared with the impact of costless electronic reminders, each additional AD completion from the letter interventions costs as little as US$37. Our findings suggest that simple, inexpensive interventions with paper communication as behavioral nudges can be effective, especially in older populations.
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