Webinar: The Social Determinants of Choice Quality: Evidence from Health Insurance in the Netherlands
Speaker(s)Johannes Spinnewijn (London School of Economics, United Kingdom)
Date and time
June 15, 2020
16:00 - 17:00
To participate, please register hereThere are a range of industries and contexts where regulators directly impact the product choices that consumers have available. If consumers make choice errors, the regulator faces a trade-off between generating match benefits and avoiding consumer misallocation when offering choice. This is especially pertinent if lower SES consumers are also those who make worse choices. We study these issues in the health insurance market in the Netherlands, where the regulator specifies what deductible levels private insurers can offer consumers. Our analysis studies all consumers in the Netherlands using granular and comprehensive administrative data, including data on health insurance choices and health utilization allowing us to estimate choice quality, linked to a rich set of socio-economic factors and the choices made be peers. Overall, the choice quality is low and choices are under-responsive to predictable differences in health risk. Importantly, we document stark differences, with especially individuals with higher education levels and more analytic degrees or professions making better decisions. Exploiting variation in exposure to peers, we show that peer effects, within firms, location and families, have substantial impact on consumer choice quality. We leverage these results to study the foregone consumer welfare and normative implications of several counter-factual scenarios. While consumers leave substantive surplus on the table when faced with the existing choice menu, the mandates we consider reduce consumer welfare too. We show that the equity implications of these policies depend critically on (i) choice quality by socio-demographic group conditional on health risk and (ii) the correlation between health risk and socio-demographic characteristics.