Can Consumers Make Affordable Care Affordable? The Value of Choice Architecture

In less than a year, on January 1, 2014, tens of millions of Americans, along with members of Congress, will participate in a grand experiment in consumer choice: They will select health insurance using a marketplace or health insurance exchange operated by states and federal governments as part of the Patient Protection and Affordable Care and Act. The success of these exchanges depends upon two related premises: First that consumers will be able to select the best policy for their needs, and second that price competition, driven by effective consumer choice, will lower prices. These premises are critical not only to the new exchanges, but also for all government administered health insurance markets and for the efficiency of privately provided benefit choices. Yet, a large literature in psychology suggests that this may not be the case, since, as we shall see, these exchanges may not provide a helpful choice architecture to support decision making. In this paper, we examine three related questions: Can people select the best policies? Do they know how well they are doing? Does the design of the sites change their performance?