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Simple Humans, Complex Insurance, Subtle Subsidies

Author

Listed:
  • Jeffrey Liebman
  • Richard Zeckhauser

Abstract

The behavioral revolution in economics has demonstrated that human beings often have difficulty making wise choices. The most widely chronicled difficulties arise for decisions made under conditions of uncertainty, those whose consequences unfold over significant amounts of time, and decisions made in complex environments. Unfortunately, these are precisely the elements involved when individuals choose a health insurance policy, or decide whether to consume health care services. In this paper, we argue that traditional economic models of insurance are woefully insufficient for analyzing the tradeoffs inherent when giving consumers responsibility for making health care choices. We show that behavioral economics provides a stronger normative justification for many features of our existing health care policy than do the models of traditional economics. We then demonstrate that policy analyses of the wide range of subsidies that permeate the health care system change substantially when viewed from the behavioral perspective. In closing, we discuss how recent policy trends can be fruitfully assessed using a behavioral lens.

Suggested Citation

  • Jeffrey Liebman & Richard Zeckhauser, 2008. "Simple Humans, Complex Insurance, Subtle Subsidies," NBER Working Papers 14330, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:14330
    Note: HC HE PE
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    Cited by:

    1. Fels, Markus, 2013. "Limited Attention and the Demand for Health Insurance," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80485, Verein für Socialpolitik / German Economic Association.
    2. Katherine Baicker & Sendhil Mullainathan & Joshua Schwartzstein, 2015. "Behavioral Hazard in Health Insurance," The Quarterly Journal of Economics, Oxford University Press, vol. 130(4), pages 1623-1667.
    3. Hendrik Schmitz & Nicolas R. Ziebarth, 2011. "In Absolute or Relative Terms? How Framing Prices Affects the Consumer Price Sensitivity of," Ruhr Economic Papers 0304, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    4. Jonathan D. Ketcham & Claudio Lucarelli & Eugenio J. Miravete & M. Christopher Roebuck, 2012. "Sinking, Swimming, or Learning to Swim in Medicare Part D," American Economic Review, American Economic Association, vol. 102(6), pages 2639-2673, October.
    5. Boone, J. & Schottmuller, C., 2015. "Health Provider Networks, Quality and Costs," Discussion Paper 2015-005, Tilburg University, Center for Economic Research.
    6. Sinaiko, Anna D. & Hirth, Richard A., 2011. "Consumers, health insurance and dominated choices," Journal of Health Economics, Elsevier, vol. 30(2), pages 450-457, March.
    7. Jonathan D. Ketcham & Nicolai V. Kuminoff & Christopher A. Powers, 2016. "Estimating the Heterogeneous Welfare Effects of Choice Architecture: An Application to the Medicare Prescription Drug Insurance Market," NBER Working Papers 22732, National Bureau of Economic Research, Inc.
    8. repec:zbw:rwirep:0304 is not listed on IDEAS
    9. Afendulis, Christopher C. & Sinaiko, Anna D. & Frank, Richard G., 2015. "Dominated choices and Medicare Advantage enrollment," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 72-83.
    10. Saurabh Bhargava & George Loewenstein & Justin Sydnor, 2015. "Do Individuals Make Sensible Health Insurance Decisions? Evidence from a Menu with Dominated Options," NBER Working Papers 21160, National Bureau of Economic Research, Inc.
    11. repec:eee:jhecon:v:55:y:2017:i:c:p:262-273 is not listed on IDEAS

    More about this item

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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