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The Social Determinants of Choice Quality: Evidence from Health Insurance in the Netherlands

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  • Benjamin R. Handel
  • Jonathan T. Kolstad
  • Thomas Minten
  • Johannes Spinnewijn

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.

Suggested Citation

  • Benjamin R. Handel & Jonathan T. Kolstad & Thomas Minten & Johannes Spinnewijn, 2020. "The Social Determinants of Choice Quality: Evidence from Health Insurance in the Netherlands," NBER Working Papers 27785, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27785
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    References listed on IDEAS

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    1. John Y. Campbell, 2016. "Restoring Rational Choice: The Challenge of Consumer Financial Regulation," American Economic Review, American Economic Association, vol. 106(5), pages 1-30, May.
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    Cited by:

    1. Gu, Yiquan & Rasch, Alexander & Wenzel, Tobias, 2022. "Consumer salience and quality provision in (un)regulated public service markets," Regional Science and Urban Economics, Elsevier, vol. 93(C).
    2. Kolsrud, Jonas & Spinnewijn, Johannes, 2024. "The value and limits of unemployment insurance," LSE Research Online Documents on Economics 122225, London School of Economics and Political Science, LSE Library.
    3. Xavier Jaravel, 2021. "Inflation Inequality: Measurement, Causes, and Policy Implications," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 599-629, August.
    4. Nathaniel Hendren & Camille Landais & Johannes Spinnewijn, 2021. "Choice in Insurance Markets: A Pigouvian Approach to Social Insurance Design," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 457-486, August.
    5. Aaltonen, Katri & Vaalavuo, Maria, 2024. "Financial burden of medicines in five Northern European countries: A decommodification perspective," Social Science & Medicine, Elsevier, vol. 347(C).
    6. Holst, Laurens & Rademakers, Jany J.D.J.M. & Brabers, Anne E.M. & de Jong, Judith D., 2022. "Measuring health insurance literacy in the Netherlands – First results of the HILM-NL questionnaire," Health Policy, Elsevier, vol. 126(11), pages 1157-1162.
    7. Avdic, Daniel & Decker, Simon & Karlsson, Martin & Salm, Martin, 2024. "No-claim refunds and healthcare use," Journal of Public Economics, Elsevier, vol. 230(C).
    8. Naoki Aizawa & You Suk Kim, 2020. "Public and Private Provision of Information in Market-Based Public Programs: Evidence from Advertising in Health Insurance Marketplaces," NBER Working Papers 27695, National Bureau of Economic Research, Inc.
    9. Benjamin R. Handel & Jonathan T. Kolstad, 2021. "The Affordable Care Act After a Decade: Industrial Organization of the Insurance Exchanges," NBER Working Papers 29178, National Bureau of Economic Research, Inc.
    10. Lily Davies & Mark Kattenberg & Benedikt Vogt, 2023. "Predicting Firm Exits with Machine Learning: Implications for Selection into COVID-19 Support and Productivity Growth," CPB Discussion Paper 444, CPB Netherlands Bureau for Economic Policy Analysis.
    11. Boone, Jan, 2024. "Pricing above value: Selling to a market with selection problems," Journal of Health Economics, Elsevier, vol. 94(C).

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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality

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