The Social Determinants of Choice Quality: Evidence from Health Insurance in the Netherlands

Johannes Spinnewijn
Start date

Monday, 15 Jun 2020, 16:00

End date

Monday, 15 Jun 2020, 17:00


There are a range of industries and contexts where regulators directly impact the product choices that consumers have available. If consumers make choice errors, as much prior work documents, then market designers will generally want to weigh the improved match benefits of additional choices with the potential negative consequences of greater consumer misallocation.

We study these issues in the Netherlands health insurance market, where the regulator specifies what deductible levels private insurers can offer consumers. Our analysis studies all consumers in the Netherlands using rich administrative data on health insurance choices, health utilization, education, income, wealth, and peers. We document stark differences in choice quality across these domains finding that (i) higher education levels (ii) more analytic degrees (iii) more analytic professions (iv) higher income and (v) higher wealth are all associated with better decisions, conditional on health risk and myriad other socio-demographic factors. We show that peer effects, within families and within firms, have meaningful impacts on consumer choice quality.

We leverage these results to study the normative implications of several counterfactual scenarios including (i) optimal allocation of consumers to deductibles (ii) a high deductible mandate and (iii) a low deductible mandate. We assess the consumer surplus and equity implications of these policies and find that, while consumers leave most of the surplus from potential deductible matches on the table, the mandates we consider reduce consumer welfare. We show that the equity implications of these policies depend critically on (i) choice quality by socio-demographic group conditional on health risk and (ii) the correlation between health risk and socio-demographic characteristics.