Reducing Ordeals through Automatic Enrollment: Evidence from a Health Insurance Exchange

Policymakers can encourage public program enrollment through either financial incentives or streamlined enrollment. We study a defaults policy that streamlines health insurance take-up by auto-enrolling qualifying individuals who fail to respond when asked to select a health plan. This “targeted” auto-enrollment policy has a major impact, increasing enrollment by 30-50% and differentially enrolling young, healthy, low-cost people, with little evidence of improper enrollment of the already-insured. We evaluate the policy’s tradeoffs using a model of auto-enrollment as removing a non-price ordeal to take-up. Consistent with the classic rationale for ordeals, marginal enrollees have attributes suggesting low (private) value of insurance. But the same attributes correlate with low public costs, making the targeting efficiency case less clear. Relative to financial subsidies, auto-enrollment has similar targeting properties but is 36-125% more cost-effective by avoiding new spending on inframarginal enrollees. JEL codes: I13, I18, D90