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

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% and differentially excluding young, healthy, and economically disadvantaged people. Using a simple model, we show that 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.

NBER Working Paper #30781

Notes:

Revise & Resubmit, American Economic Review
(Previously circulated as "Reducing Ordeals through Automatic Enrollment")
Coverage: HKS Insights

See also: Working Papers
Last updated on 03/12/2024