Today’s IssueIs more choice always better? How much

choice is too much?

Should the Exchange manage the number and type of products on its store shelves?

The Affordable Care Act – Statutory Requirements Requires coverage of essential health

benefitsLimits actuarial value to the precious metals

(Bronze, Silver, Gold, Platinum) and a catastrophic plan

Sources of variationAllows coverage of additional benefitsDoes not prescribe cost-sharing designs

Potential Benefits of StandardizationMake comparisons easier

Improve consumer decision-makingEnhance competition improve quality and

reduce priceLimit insurers’ ability to use benefit design to

select riskMedicare Advantage: some plans imposed

higher copayments for costly treatments like chemotherapy

Increase participation in the Exchange

Improving Decision-MakingThe chocolate experiment

Participants who had limited choice were significantly more satisfied with their chocolate

Medicare Part DConsumers frequently choose plans that provide

less risk protection at higher costMedicare Advantage

CMS: “The large number of MA plan options…has made it difficult and confusing for beneficiaries to distinguish between these plans and to choose the best option to meet their needs.”

Plans must be “meaningfully different”

Enhancing CompetitionSwiss health insurance: “inertia due to

numbers”People offered more choices were less likely to

switch plans

Nonpartisan Congressional Budget Office: Exchanges can enhance competition and reduce premiums by allowing consumers to compare standardized products

Increasing Participation in the Exchange401(k) retirement savings plans

As the number of fund options increases, employee participation falls

Proctor & GambleReduction in the number of shampoo products

increased sales

Potential Risks of StandardizationProducts that are not in line with consumer

preferencesExchange could conduct market research, and

review options annuallyCould stifle innovation that promotes value

“Value-based insurance design” – lower cost-sharing for cost-effective services

“Provider tiering” – vary cost-sharing for providers based on their performance

Question for DiscussionShould the Exchange have authority to

standardize plan designs?

CA legislation: “The board shall have the authority to standardize products to be offered through the Exchange.”