The Health Insurer Nudge

Abstract

Lawmakers are looking for Obamacare savings in the wrong place. Removing sick people from risk pools or reducing health plan benefits — the focus of lawmakers’ attention — would harm vulnerable populations. Instead, reform should target the $750 billion worth of unnecessary care prescribed by doctors, consented to by patients, and paid for by insurers. This Article unravels the mystery of why the insurance market has failed to excise this waste on its own. A toxic combination of mismatched legal incentives, market failures, and industry norms, means that the insurance market cannot solve the problem absent intervention. But a simple nudge could help: steering decision-makers away from unnecessary care while protecting the autonomy of doctors and patients. Insurers should require by contract that providers receive an automated warning before ordering commonly overused interventions. Such computer-driven nudges have been effective in other contexts and would reduce premiums without resorting to the means currently being explored. Because insurers lack appropriate incentives to nudge, the law must mandate it.