When All That Glitters Is Gold: Dominated Plan Choice on Covered California for the 2018 Plan Year

Abstract

Purchasing health insurance is a complex task with multiple potential points of failure. In 2018, following the silver‐loading price shock, 20.2% of households earning above 200% of the federal poverty level with coverage through the two Covered California insurers who sold dominated silver plans purchased the inferior, dominated silver plan. Individuals who were automatically reenrolled were more likely to purchase an inferior, dominated plan. Automatic reenrollment rules and marketplace choice architecture should be modified to avoid placing people into dominated health insurance policies and help consumers more easily select superior coverage for themselves. Context The Affordable Care Act (ACA) individual health insurance marketplaces rely on purchasers to make informed choices to impose price and quality discipline on a complex array of insurance products. A sudden and minimally expected policy shock in the fall of 2017—the termination of direct federal payment for cost‐sharing reduction (CSR) subsidies—led to a substantial change in the relative prices of silver and gold plans on the Covered California insurance marketplace. From 2014 to 2017, all gold plans in California were more expensive than comparable silver plans that were offered by the same insurer using the same network in the same county. For the 2018 plan year, however, some gold plans that had lower cost sharing also had lower premiums than did comparable silver plans, resulting in silver “dominated” plans being sold through Covered California. Methods We used the Covered California enrollment and product files from 2014 to 2018 in a retrospective data analysis of plan choice. We examined individuals earning above 200% of the federal poverty level who purchased plans from insurers who sold dominated silver plans in 2018. Findings We found that 3.9% of all Covered California enrollees in 2018 chose a strictly and transparently dominated plan. Among households with incomes above 200% of the federal poverty level that were enrolled in plans from the two insurers that offered dominated plans, 20.2% chose a dominated plan. Households that actively enrolled in 2018 and were enrolled in a silver plan in the previous year enrolled in a dominated plan at higher rates than did new enrollees and those who were enrolled in nonsilver plans in the previous year. More than 30% of households that had their coverage automatically renewed in 2018 enrolled in a dominated plan. On average, households enrolled in dominated plans in 2018 spent an additional $38.87 per month in premiums. Conclusions Households routinely chose dominated plans and were exposed to both higher monthly premiums and higher potential cost sharing. Health insurance marketplaces should improve decision supports and choice curation to eliminate the possibility of individuals choosing dominated plans.

Estimated Plan Enrollment Outcomes After Changes to US Health Insurance Marketplace Automatic Renewal Rules

“…This phenomenon, known as dominated health plan choice, is a common occurrence in private health insurance markets, including the health care marketplaces. [4][5][6][7][8] The American Rescue Plan (ARP), signed into law in March 2021, increased premium tax credit subsidies through 2022. These subsidies reduce marketplace plans' premiums for qualifying enrollees.…”

Plan Selection, Enrollee Risk, and Health Spending on the Patient Protection and Affordable Care Act Individual Marketplaces, 2019

“…15 However, this research does not provide detail on enrollee plan selection and cost implications across varying levels of enrollee risk, which limits understanding of the associations between these factors. Furthermore, studies have shown many enrollees make suboptimal selections, despite decision-making nudges, [16][17][18][19] due in part to lack of health insurance literacy and variable assessment of their own health risk. 19 A greater understanding of the distribution of enrollee risk and spending by metal tier may enhance the ability of market administrators, insurance plan designers, and policy makers to offer appropriate insurance products.…”

Dynamic Price Competition for Low-Cost Silver Plans on Healthcare.gov 2014–2021

“…Health insurance literacy in the United States is low (Kim et al, 2013). Individuals frequently choose strictly dominated plans where they pay substantially higher premiums for worse coverage relative to other similar options offered by the same insurer (Rasmussen & Anderson, 2021). Inattention and the hassle costs of switching plans are estimated to cost the median household almost $1,800 in foregone consumer surplus (Drake et al, 2022).…”