Today’s Issue Is more choice always better? How much choice is too much? Should the Exchange manage the number and type of products on its store shelves?

The Affordable Care Act – Statutory Requirements Requires coverage of essential health benefits Limits actuarial value to the precious metals (Bronze, Silver, Gold, Platinum) and a catastrophic plan Sources of variation Allows coverage of additional benefits Does not prescribe cost-sharing designs

Potential Benefits of Standardization Make comparisons easier Improve consumer decision-making Enhance competition  improve quality and reduce price Limit insurers’ ability to use benefit design to select risk Medicare Advantage: some plans imposed higher copayments for costly treatments like chemotherapy Increase participation in the Exchange

Improving Decision-Making The chocolate experiment Participants who had limited choice were significantly more satisfied with their chocolate Medicare Part D Consumers frequently choose plans that provide less risk protection at higher cost Medicare Advantage CMS: “The large number of MA plan options…has made it difficult and confusing for beneficiaries to distinguish between these plans and to choose the best option to meet their needs.” Plans must be “meaningfully different”

Enhancing Competition Swiss health insurance: “inertia due to numbers” People offered more choices were less likely to switch plans Nonpartisan Congressional Budget Office: Exchanges can enhance competition and reduce premiums by allowing consumers to compare standardized products

Increasing Participation in the Exchange 401(k) retirement savings plans As the number of fund options increases, employee participation falls Proctor & Gamble Reduction in the number of shampoo products increased sales

Potential Risks of Standardization Products that are not in line with consumer preferences Exchange could conduct market research, and review options annually Could stifle innovation that promotes value “Value-based insurance design” – lower cost-sharing for cost-effective services “Provider tiering” – vary cost-sharing for providers based on their performance

Question for Discussion Should the Exchange have authority to standardize plan designs? CA legislation: “The board shall have the authority to standardize products to be offered through the Exchange.”