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Do Ordeals Work for Selection Markets? Evidence from Health Insurance Auto-Enrollment

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  • Mark Shepard
  • Myles Wagner

Abstract

Are application hassles, or "ordeals," an effective way to limit public program enrollment? We provide new evidence by studying (removal of) an auto-enrollment policy for health insurance, adding an extra step to enroll. This minor ordeal has a major impact, reducing enrollment by 33 percent and differentially excluding young, healthy, and economically disadvantaged people. Using a simple model, we show adverse selection--a classic feature of insurance markets--undermines ordeals' standard rationale of excluding low-value individuals since they are also low-cost and may not be inefficient. Our analysis illustrates why ordeals targeting is unlikely to work well in selection markets.

Suggested Citation

  • Mark Shepard & Myles Wagner, 2025. "Do Ordeals Work for Selection Markets? Evidence from Health Insurance Auto-Enrollment," American Economic Review, American Economic Association, vol. 115(3), pages 772-822, March.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:3:p:772-822
    DOI: 10.1257/aer.20231133
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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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