Too Many Choices: Why seniors won't sign up for Medicare drug plans.

[Thom Little]

By Barry Schwartz
Slate
Tuesday, Nov. 22, 2005



The new Medicare prescription drug plan will save senior citizens billions of dollars, so why are so many of them afraid to sign up for it? You wouldn't think such a beneficent program would have to put a metaphorical gun to people's heads (in the form of a 1 percent per month premium penalty) to get them to enroll now. Yet that is what seems to be happening. Senior citizens are confused. The government has turned the insurance companies loose, with the result that in some states there are more than 50 plans to choose from—all of them complicated—and nowhere is there a simple metric that people can use to determine which plan is best for them.

Befuddled seniors are clutching their heads and asking someone, anyone (their pharmacists, their kids, AARP) for help. Some of them will end up avoiding the plans entirely—and missing out on big drug savings—because they can't figure out which plan to pick.

This reaction to the drug plan was completely predictable based on modern research in the psychology of decision-making, sometimes called "behavioral economics." There is now ample evidence that when you increase choice by offering more and more options, a point is reached at which paralysis rather than "freedom" is the result. This is true of trivial consumer choices, such as which flavor of jam to buy, and of extremely consequential choices, such as which 401(k) funds to put your retirement money in.

Indeed, the 401(k) story is remarkably analogous to the new prescription drug plan. Columbia University social scientists Sheena Iyengar and Wei Jiang found that as companies did their employees a "favor" by offering more and more mutual-fund options for their 401(k) contributions, fewer and fewer people elected to participate. Participation dropped 2 percent for every 10 options offered. And, analogous to the Medicare drug plan, by not participating, employees were giving up "free money" in the form of an employer match. It was so hard to decide which funds that employees chose "none of the above." Employees were so worried they would make a bad choice that they made the worst choice—opting out. And even among those employees who realized that it was foolish to opt out, Iyengar and Jiang found another interesting result: As the number of mutual-fund options increased, the percentage of employees choosing ultraconservative money-market funds rather than equity funds also increased. Any investment adviser will tell you that this is the worst choice you can make for your retirement plan, unless you are old enough to be nearing retirement. So, as the number of options increases, fewer people opt in at all, and more who opt in make poor decisions.




http://www.slate.com/id/2130932/?nav=tap3

[Quakerfriend]

1. Yes, and the confusion is VERY intentional

I'm a highly educated 47 year old who worked in healthcare for 17 years, and I find myself not using the insurance I do have because the language is so deceptive and not at all informative. The phone numbers given for assistance are often a circular message that does not allow you to speak to anyone EVER. The language in the plan is often meant to trip you up.

It's criminal in my opinion!

[Captain Hilts]

3. AGREED. Every pollster knows the more choices there are...

the less likely people are to make a choice at all.

[SharonAnn]

2. Also, seniors reasoning abilities often diminished with age. And lack of

Internet experience to do any "comparison" of alternatives on-line.

The best solution would have been for Medicare to administer it and for Medicare to negotiate drug prices. It would´ve had the lowest cost and highest participation rate because of its simplicity negotiating leverage.

Anything else was intended to be diversion of funds to friendly companies. It was intended to put a lot of money in the pockets of Bush friends, and incidentally provided some presecription drug benefit for some citizens who needed it.