The Effect of the Number of Plans on Inertia and Adverse Selection: Evidence from the ACA Open Access

Abstract

In this paper I estimate the effect the number of choices has on both adverse selection and inertia within a

market. Specifically, I am interested in whether choice overload can cause a decrease in adverse selection

and increase inertia. To do this I utilize data from the ACA exchanges at the national level for adverse

selection and inertia. I found that it is likely that an increase in plans correlates with an increase in adverse

selection as consumers can make informed decisions from a wider array of choices. Inertia also decreases

with an increase in choices. My model also estimates that at a high number of plans, both relationships

reverse as choice overload takes effect.

Table of Contents

1 Introduction 2

1.1 Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1.2 Background on the Affordable Care Act and the Exchanges . . . . . . . . . . . . . . . . . . . . 2

1.3 Choice Overload . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1.4 Adverse Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1.5 Inertia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

1.6 Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2 Methodology 5

2.1 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2.2 Econometric Model for Adverse Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2.3 Econometric Model for Inertia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

3 Results 8

3.1 Adverse Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

3.2 Inertia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

4 Conclusion 11

4.1 Limitations and Future Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

4.2 Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

5 References 13

6 Appendix 14

About this Honors Thesis

Rights statement

• Permission granted by the author to include this thesis or dissertation in this repository. All rights reserved by the author. Please contact the author for information regarding the reproduction and use of this thesis or dissertation.

School	Emory College
Department	Economics
Degree	B.A.
Submission	Honors Thesis
Language	English
Research Field	Health Sciences, Health Care Management Economics, General Health Sciences, Public Health
Keyword	Insurance Health Behaviors Adverse Selection
Committee Chair / Thesis Advisor	Evan Saltzman, Emory University
Committee Members	Ian McCarthy, Emory University Victoria Phillips, Emory University

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