HCS 490 Week 5 Consumer Choices and Dilemmas Example

When More Choice Costs More: Health Plan Menus, Dominated Options and the Limits of Calling Patients Consumers

[Student Name]

University of Phoenix

HCS/490: Health Care Consumer - Trends and Marketing

Week 5 Assignment

[Instructor Name]

[Date]

The employer's plan menu and the employees described are composites written for a model paper; research findings come from the sources listed.

Every November, a composite hospital system's 6,000 employees open a benefits website and choose among eight health plans. The plans differ in deductibles, from $250 to $3,500, in coinsurance and in premiums. An environmental services worker with two children spends twenty minutes on the site, sees that the lowest deductible feels safest and chooses it, paying $1,300 more in premiums for the year than the high-deductible option. What she does not see is that, given the prices, the low-deductible plan could never save her more than it costs, even in a year of heavy use. Her choice illustrates a central dilemma of consumer-driven health care: choice can cost consumers money when the options are too complex to compare.

The Evidence on Plan Choice

Bhargava et al. (2017) studied the health plan choices of 23,894 employees at a U.S. firm that offered a large menu of plans differing only in deductibles, coinsurance and premiums. Because of how the plans were priced, nearly every plan with a lower deductible was financially dominated by an otherwise identical plan with a higher deductible: the higher-deductible plan cost less no matter how much care the employee used. A majority of employees nonetheless chose dominated plans, and their excess spending equaled about 24% of the premiums of the plans they chose. Low-income employees were more likely to choose dominated plans, and most employees did not switch to better plans the following year.

Why People Choose This Way

The authors showed that the choices could not be explained by a preference for avoiding risk, since the dominated plans offered no protection that the cheaper plans lacked. The more plausible explanation was confusion: many employees did not understand how deductibles, coinsurance and premiums combine into total cost. A low deductible feels protective; the premium difference, spread across paychecks, feels small. Without a tool that adds up the numbers, many people follow intuition, and intuition is often wrong.

Who Is Hurt Most

When low-income employees are more likely to choose dominated plans, choice itself becomes regressive: the people with the least money lose the most to confusing menus. Such employees may also have less time to study options and fewer people to ask. A menu intended to respect individual preferences can widen financial inequality among an employer's own staff.

Where Consumer Language Breaks Down

Plan choice at least happens on a calm evening at home. Many health care decisions do not. Durrah (2019), the mother of a chronically ill child, wrote that the language of consumerism does not fit families like hers: they cannot shop around during a crisis, cannot walk away from a hospital that is failing them and often have no meaningful alternative. Being called a consumer, she argued, can suggest that families are responsible for outcomes they cannot control. Her essay is a reminder that the consumer model describes some health care decisions better than others.

Choosing a Hospital or a Doctor

Plan choice is not the only consumer decision where information falls short. Consumers choosing a hospital for a planned surgery can find star ratings, patient reviews and some price estimates, but the measures that matter most, such as complication rates for their specific operation, are hard to find and harder to interpret. Most people choose based on their physician's referral, location and reputation. That is not irrational: a trusted physician's advice may be the best information available. But it means that report cards and ratings, however well designed, change fewer choices than their designers hope, and that the physician's recommendation remains the most powerful influence on where consumers receive care.

Dilemmas for Organizations

These findings create dilemmas for organizations. An employer offering many plans may believe it is respecting choice while actually collecting higher premiums from confused employees. A health plan marketing a low-deductible option as peace of mind may be selling a product that cannot pay off. A hospital advertising to consumers must decide whether to compete on amenities that consumers notice or on outcomes they cannot easily judge. And simplifying choices, by removing options or setting defaults, can be seen as paternalistic. Each dilemma asks whether the organization is helping consumers choose or profiting from their difficulty.

Recommendations for the Employer

The hospital system can redesign its menu using the evidence. First, remove dominated plans; there is no reason to offer an option that is worse in every situation. Second, reduce the menu from eight plans to three that differ meaningfully. Third, provide a decision tool that estimates each employee's total annual cost, premium plus expected out-of-pocket spending, based on past use. Fourth, set a sensible default for employees who do not choose, rather than rolling them into last year's plan. Fifth, give lower-wage employees a larger employer contribution to a health savings account so the high-deductible plan does not push them to skip care, a real risk given evidence that high deductibles lead many people to use less care rather than shop for better prices (Brot-Goldberg et al., 2017).

A Note on Defaults

Defaults are powerful because many people accept whatever choice is made for them. If the hospital system defaults employees into the high-deductible plan with a funded health savings account, most will stay there, which will save many of them money but could hurt employees with high expected costs. A better default considers each employee's past use and places those with chronic conditions in a plan with lower cost sharing for their care, while explaining the choice and making it easy to switch.

Measuring the Change

The employer can track, year over year, the share of employees in dominated or high-cost choices, average total cost by wage band, use of the decision tool and employee ratings of how confident they felt choosing.

Conclusion

Consumer choice in health care is valuable when options are clear and people can compare them. When menus are complex, many people choose poorly, and those with the least money lose the most. Some decisions, made in crisis, are not consumer choices at all. Organizations that design simpler menus, better tools and fair defaults take the dilemma seriously and help people choose well.

References

Bhargava, S., Loewenstein, G., & Sydnor, J. (2017). Choose to lose: Health plan choices from a menu with dominated option. The Quarterly Journal of Economics, 132(3), 1319-1372. https://doi.org/10.1093/qje/qjx011

Brot-Goldberg, Z. C., Chandra, A., Handel, B. R., & Kolstad, J. T. (2017). What does a deductible do? The impact of cost-sharing on health care prices, quantities, and spending dynamics. The Quarterly Journal of Economics, 132(3), 1261-1318. https://doi.org/10.1093/qje/qjx013

Durrah, H. (2019). My child is sick; don't call her a 'consumer'. Health Affairs, 38(3), 502-505. https://doi.org/10.1377/hlthaff.2018.05012