American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Do Ordeals Work for Selection Markets? Evidence from Health Insurance Auto-Enrollment
American Economic Review
vol. 115,
no. 3, March 2025
(pp. 772–822)
Abstract
Are application hassles, or "ordeals," an effective way to limit public program enrollment? We provide new evidence by studying (removal of) an auto-enrollment policy for health insurance, adding an extra step to enroll. This minor ordeal has a major impact, reducing enrollment by 33 percent and differentially excluding young, healthy, and economically disadvantaged people. Using a simple model, we show adverse selection--a classic feature of insurance markets--undermines ordeals' standard rationale of excluding low-value individuals since they are also low-cost and may not be inefficient. Our analysis illustrates why ordeals targeting is unlikely to work well in selection markets.Citation
Shepard, Mark, and Myles Wagner. 2025. "Do Ordeals Work for Selection Markets? Evidence from Health Insurance Auto-Enrollment." American Economic Review 115 (3): 772–822. DOI: 10.1257/aer.20231133Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- G22 Insurance; Insurance Companies; Actuarial Studies
- H75 State and Local Government: Health; Education; Welfare; Public Pensions
- I13 Health Insurance, Public and Private
- I18 Health: Government Policy; Regulation; Public Health