When Less is More: Improving Choices in Health Insurance Markets.

This article examines how the size of health insurance choice sets affects the quality of plan selections among school district employees in Oregon. Using detailed enrollment and claims data from 2008 to 2012, the study finds substantial choice inconsistencies, including a novel form called "approximate inertia," where enrollees tend to switch only to plans similar to their current one regardless of potential savings. The analysis shows that smaller, curated choice sets lead to significantly lower total costs and foregone savings compared to larger sets, not because of "choice overload" but because larger sets include more high-cost plans that are not offset by better consumer optimization. Simulations indicate that restricting choice sets can improve consumer welfare more effectively than information interventions, especially given the dampening effects of inertia and approximate inertia on the latter. The findings highlight the role of plan administrators in curating choice sets and suggest that carefully limiting options may enhance decision quality in employer-sponsored health insurance markets.