If you’re among the millions of people who have struggled to find affordable health insurance, you might be delighted to hear the Affordable Care Act, now up and running, will offer dozens of insurance plans at reasonable prices. But, believe it or not, fewer choices might actually encourage more people to sign up.
It’s an article of faith among free-market mavens that the more choice consumers have, the better off they are. It doesn’t work out that way in real life, however. When faced with too many choices, consumers sometimes experience a kind of mental paralysis that leads them to make no decision at all. And when they do make a decision, they tend to make irrational choices that don’t really provide what’s most important to them.
Obamacare, as the Affordable Care Act is popularly known, opened its online state-run exchanges on Oct. 1. The government says the typical family will be able to choose from 53 health plans, on average, with a few states, including Florida and Arizona, offering more than 100. That’s a dizzying number of choices.
"People will make bad decisions"
“There’s no way people are going to be able to make optimal decisions, except by luck,” says Barry Schwartz, a psychology professor at Swarthmore University and author of The Paradox of Choice: Why More Is Less. “If you have 40 or 50 insurance possibilities, there will be less uptake and people will make bad decisions.”
The seminal study of excessive choice was a 2000 paper recounting an experiment at a California grocery store in which two tasting tables were set up side-by-side: one offering samples of six jams, the other offering samples of 24. The “extensive” selection of jams attracted more shoppers than the “limited” selection. But only 3% of the extensive samplers made a purchase after tasting. Of those who sampled from the limited selection, 30% made a purchase.
“An extensive array of options can at first seem highly appealing to consumers,” the researchers concluded, “yet can reduce their subsequent motivation to purchase the product.” Too much choice, they found, can be "demotivating" and leave shoppers confused.
The same dynamic applies to decisions in which a lot more is at stake than deciding what to spread on your toast. After the government passed the Medicare Part D prescription drug benefit in 2003, seniors suddenly could choose from dozens of plans that would help lower their prescription drug costs. But many found the offerings so confusing they didn’t sign up, while others mistakenly chose a plan that didn’t lower their costs nearly as much as it could have.
“Decision quality deteriorates as the number of plans increases,” one study reported. “Moreover, seniors exhibit greater confidence than younger people that they are able to choose the lowest-cost plan, when the opposite is the case.”