Health Insurance Coverage and Take‐Up: Lessons from Behavioral Economics

TLDR

Millions of uninsured Americans have low‑cost insurance options yet largely ignore them, a pattern that contradicts rational‑choice theory and suggests that traditional economic prescriptions may be ineffective. This article seeks to use behavioral economics to explain low health insurance take‑up and to design policy solutions that address behavioral barriers. The authors review behavioral‑economics evidence on decision making, apply it to public and private coverage design, and evaluate its relevance to the recent health reform. Behavioral economics shows that psychological factors drive low insurance enrollment and that behaviorally informed policy levers can more effectively expand coverage.

Abstract

Millions of uninsured Americans ostensibly have insurance available to them-many at very low cost-but do not take it up. Traditional economic analysis is based on the premise that these are rational decisions, but it is hard to reconcile observed enrollment patterns with this view. The policy prescriptions that the traditional model generates may thus fail to achieve their goals. Behavioral economics, which integrates insights from psychology into economic analysis, identifies important deviations from the traditional assumptions of rationality and can thus improve our understanding of what drives health insurance take-up and improved policy design.Rather than a systematic review of the coverage literature, this article is a primer for considering issues in health insurance coverage from a behavioral economics perspective, supplementing the standard model. We present relevant evidence on decision making and insurance take-up and use it to develop a behavioral approach to both the policy problem posed by the lack of health insurance coverage and possible policy solutions to that problem.We found that evidence from behavioral economics can shed light on both the sources of low take-up and the efficacy of different policy levers intended to expand coverage. We then applied these insights to policy design questions for public and private insurance coverage and to the implementation of the recently enacted health reform, focusing on the use of behavioral insights to maximize the value of spending on coverage.We concluded that the success of health insurance coverage reform depends crucially on understanding the behavioral barriers to take-up. The take-up process is likely governed by psychology as much as economics, and public resources can likely be used much more effectively with behaviorally informed policy design.