NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Saurabh Bhargava

Graduate School of Business
University of Chicago
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773-834-3589

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NBER Working Papers and Publications

May 2015Do Individuals Make Sensible Health Insurance Decisions? Evidence from a Menu with Dominated Options
with George Loewenstein, Justin Sydnor: w21160
The recent expansion of health-plan choice has been touted as increasing competition and enabling people to choose plans that fit their needs. This study provides new evidence challenging these proposed benefits of expanded health-insurance choice. We examine health-insurance decisions of employees at a large U.S. firm where a new plan menu included a large share of financially dominated options. This menu offers a unique litmus test for evaluating choice quality since standard risk preferences and beliefs about one’s health cannot rationalize enrollment into the dominated plans. We find that a majority of employees – and in particular, older workers, women, and low earners – chose dominated options, resulting in substantial excess spending. Most employees would have fared better had the...
 
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