Health Insurance for "Humans": Information Frictions, Plan Choice, and Consumer Welfare
Benjamin R. Handel, Jonathan T. Kolstad
American Economic Review · 2015 · Volume 105 · Issue 8
Abstract
Traditional models of insurance choice are predicated on fully informed and rational consumers protecting themselves from exposure to financial risk. In practice, choosing an insurance plan is a complicated decision often made without full information. In this paper we combine new administrative data on health plan choices and claims with unique survey data on consumer information to identify risk preferences, information frictions, and hassle costs. Our additional friction measures are important predictors of choices and meaningfully impact risk preference estimates. We study the implications of counterfactual insurance allocations to illustrate the importance of distinguishing between these micro-foundations for welfare analysis. (JEL D81, D8 3, G22, I13)
Keywords
Criteria for Decision-Making under Risk and Uncertainty, Search, Learning, Information and Knowledge, Communication, Belief, Unawareness, Insurance, Insurance Companies, Actuarial Studies, Health Insurance, Public and Private
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