Nudging people with better information may actually hurt health insurance markets

One criticism leveled at President Obama’s signature healthcare reform, the Affordable Care Act (or ‘Obamacare’), was that people were often unable to continue with their existing health insurance plans, despite promises to the contrary. But could ‘inertia’ in health insurance plans actually cost people more? By studying the health insurance choices of 8,000 employees in one company Ben Handel determines that, by not readjusting their plans based on their circumstances, people lose out on more than $2,000 every year. Surprisingly, he also finds that if this inertia was reduced through the better provision of information, then the health insurance market would ‘unravel’, with few people then choosing to enroll in comprehensive coverage.