Most Aren’t Going to Use the Insurance Exchanges Correctly
The vast majority of people who get insurance on the Affordable Care Act exchanges last year aren’t planning to shop around again this year according to Gallup. More than two thirds are planning to renew their current policies.
This result shouldn’t be surprising. Comparison shopping for insurance policies is extremely difficult. Switching policies can also carry the huge opportunity cost of finding new providers covered by the new policy. In addition, people are creatures of habit. That is why we have seen, in countries like Switzerland, people rarely switch insurance policies even when it would clearly be to their financial benefit.
Still this is bad news for the program and the people using it. The Affordable Care Act was designed around strongly encouraging people to frequently shop around for insurance. The “market magic” this was meant to unleash doesn’t really work if no one is actually using the market.
This also means a lot of these people on the exchanges could be hit with some big surprise costs next year if they just let their policies automatically renew. The tax credits on the exchange are based off the price of the second-cheapest silver plan. If some new cheaper plan enters your exchange the size of your tax credits will drop. So even if the official premiums for your policy don’t change much, the amount you are required to pay could increase noticeably.