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The social determinants of choice quality: evidence from health insurance in the Netherlands

Handel, Ben, Kolstad, Jonathan T., Minten, Thomas and Spinnewijn, Johannes (2020) The social determinants of choice quality: evidence from health insurance in the Netherlands. CEP Discussion Papers (1724). Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

Market provision of impure public goods such as insurance, retirement savings and education is common and growing as policy makers seek to offer more choice and gain efficiencies. This approach induces an important trade-off between improved surplus from matching individuals to products and misallocation due to well documented choice errors in these markets. We study this trade-off in the health insurance market in the Netherlands, with a specific focus on misallocation and inequality. We characterize choice quality as a function of predicted health risk and leverage rich administrative data to study how it depends on individual human capital, socioeconomic status and social and information networks. We find that choice quality is low on average, with many people foregoing options that deliver substantive value. We also find a strong choice quality gradient with respect to key socioeconomic variables. Individuals with higher education levels and more analytic degrees or professions make markedly better decisions. Social influence on choices further increases inequality in decision making. Using panel variation in exposure to peers we find strong within firm, location and family impacts on choice quality. Finally, we use our estimates to model the consumer surplus effects of different counterfactual scenarios. While smart default policies could improve welfare substantially, including the choice of a high-deductible option delivers little welfare gain, especially for low-income individuals who make lower quality choices and are in worse health.

Item Type: Monograph (Discussion Paper)
Official URL: https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information: © 2020 The Authors
Divisions: Economics
Subjects: R Medicine > RA Public aspects of medicine
H Social Sciences > HN Social history and conditions. Social problems. Social reform
Date Deposited: 18 Jan 2021 11:54
Last Modified: 26 Apr 2021 12:14
URI: http://eprints.lse.ac.uk/id/eprint/108468

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