Health Exchanges: Competition versus Standardization

Jonathan Gruber describes a "central tension" in online health exchanges: more choices and more competition versus standardization that makes choices between plans abundantly clear:

The health-insurance markets of the (very near) future, MIT News: An online health-insurance exchange is coming to your state. How effective will it be?

That is an increasingly important question in the United States. In June 2012, the Supreme Court upheld the legality of the country’s Affordable Care Act, passed by Congress and signed into law by President Barack Obama in 2010. The program mandates private-sector health insurance for all citizens, and provides subsidies for those who otherwise could not afford it. Insurance-plan choices will be available through exchanges, or marketplaces; most people will be able to study plans and sign up for one online. As of December, nearly 20 states have elected to run exchanges themselves; the federal government will run the exchanges in other states.

And therein lies a key issue: Creating a consumer-friendly exchange is no easy task. It is hard enough to know what kinds of foods we should eat, which cars to drive, or which apps to use. Selecting an insurance plan is a far more complex decision.

“Health insurance is a confusing and difficult choice,” says Jonathan Gruber, a professor of economics at MIT who specializes in health-care issues. “It’s important that people make decisions in an organized and effective market. In that way they can make the best choices, and we can ensure the best level of competition among insurers.” ...

Moreover, as Gruber readily acknowledges, state-run insurance exchanges must pull off a difficult balancing act. The point of markets is to provide competition, but academic research shows that when people are given too many choices, they struggle to select logical options for themselves.

“The tension that exchanges face,” Gruber says, “is [having] enough standardization to make choice and competition work effectively, but not so much standardization that people can’t find the plans that best fit their tastes. That’s absolutely a central tension.” To handle this challenge, policymakers and academic researchers will almost certainly have to collaborate in productive ways.

Indeed, plenty of research suggests that America’s existing health-care offerings are already too complex. ...[more]...