The Choice Environment and Diminishing Returns of Choice on the Health Insurance Exchanges

Abstract

The Affordable Care Act (ACA) Health Insurance Exchanges (HIXs) were designed to encourage price competition in the individual and small group market by providing a platform where enrollees could purchase and compare across numerous health plan options. However, the average number of plan options available to an HIX enrollee quadrupled from 26 to 108 plans between 2019 and 2022. While the extant literature suggests that having an assortment of plan options can benefit enrollees, too many options may be detrimental to enrollee well-being and have cascading effects on market competition. Little is known about the maximum number of choices to offer on the HIXs. In this dissertation, we explore the changing dynamics of health plan menus on the HIXs and identify menu sizes where additional plan options cease to benefit enrollees. Because plan standardization was implemented for a subset of health plans on the HIXs in plan year 2023, we explore these menu sizes both with and without standardization. We found significant plan churn in the HIXs as few plans were offered for more than two consecutive years and the overall number and characteristics of HIX plans varied across time. We also found that enrollees stopped valuing new plans after 80 plans under no standardization and after 20 plans under some - or complete - standardization. These estimated maximum menu sizes are smaller than the average menu size offered on HIXs in 2022 suggesting that HIXs may be able to reduce the number of health plan options available to enrollees without negatively impacting enrollee well-being. Continuing to expand this knowledge base may guide policymakers as they work to improve competition and enrollee choice on the HIXs.