Can consumers have too much choice?

The idea that people can have ‘too much’ choice is anathema to many of our economist and psychologist colleagues. Economists find more choice to be liberating for individuals, because they can reach a higher state of utility by finding just the right product. For society, it breeds healthy competition, bringing us further away from a monopolistic environment. Psychologists focus more on individuals; additional choice is usually viewed as empowering. It allows individuals to experience a greater sense of control. Lack of choice is, quite appropriately, often viewed as a hallmark of lack of freedom.

These arguments are strong ones, but in the last few years there has been an incipient movement towards the idea that excessive choice can be debilitating rather than empowering [1]. Our contemporaries should not take too much credit, however, as the idea goes back at least 50 years to the work of Herbert Simon [2,3]. Too much choice can tax our cognitive abilities, making it difficult to make a good decision or, alternatively, making one freeze like a deer in the headlights – thus making no choice at all. If a person does choose, he or she may soon regret what is chosen. Curiously, this is the exact opposite of what economic theory posits, where the choice made is always the best as it is based on rational economic calculus.

Recent evidence in support of this idea is too numerous to cite in a brief editorial [4]. From psychological experiments where people make more satisfying food choices when there is a more limited menu [5], to the real world, where they are more likely to invest, and invest well, with a limited plate of options [6], evidence is mounting that markets, operating on their own, might make consumers worse off by the panoply of choices available. In fact, there is now a new theory called ‘libertarian paternalism’ that champions the idea that experts – oftentimes government – can improve consumer welfare by inserting themselves between the choice environment and the consumer [7].

The USA, perhaps even more than other developed countries, is cited as an example of choice gone amok, with one intrepid observer counting at his local supermarket … 285 varieties of cookies (21 chocolate chip, alone), 61 sunscreens and tanning oils, 40 toothpastes, 75 instant gravies and 275 cereals [1]. There is not much at stake, perhaps, when one goes grocery shopping. The focus of our own research has been on something where, one might argue, more is at stake: insurance for pharmaceuticals.

Since 2006, private insurance companies have competed to enroll Americans who are eligible for Medicare: those aged 65 and older and the disabled. The new insurance scheme, known as Medicare Part D, is a government mandated and sponsored program. Private insurance companies, however, are the ones who actually run it. Given its design, allowing any insurance company to compete in this lucrative market, nearly all states have more than 50 choices of drug insurance plans and some have over 60 (this does not even count managed care options like health maintenance organizations; including them results in a choice set of over 100). In addition, drug plans vary along a number of attributes – such as which drugs are ‘preferred’ or on-formulary; obtained on a discounted basis, monthly premium, and whether one can have their drugs delivered to their home – and insurance companies can alter the plan configuration each year.

The program, after some well-publicized growing pains, is now touted as a success, with premiums lower than anticipated, enrollment high and satisfaction rates acceptable. Delving deeper, however, we unearth some problems. It is becoming increasingly clear that seniors are not choosing plans very well. We know that because they fail to reconsider their choices, and switch accordingly, when they are given the opportunity to do so each year. Under 10% of enrollees switch plans each year [8], but 43% would save hundreds of dollars a year if they did so [9].

Our own research has shown that offering more choice is particularly hard on seniors. We conducted an experiment in a Southern California community, where half of the participants were over the age of 65 years and therefore eligible for Medicare, and half were younger (18–64 years of age). Among each age group, we randomized participants into three groups: those with three hypothetical drug insurance plan choices, ten choices and 20 choices – far fewer than they face in the real world. They were given data similar to what they receive from Medicare and asked a number of factual and subjective questions. In general, older participants did more poorly than younger ones, and those with more choices did worse than those with fewer. One intriguing finding was that even though seniors were less likely to answer factual questions correctly, they were more confident than their younger counterparts that they got the right answers: just because you think you can handle a lot of choice doesn’t mean that you can.

Are there are any policy options available if one were to stick with a private insurance model? There are, but those that are least controversial probably won’t do much good. Economists often call for more and better information, and indeed, extensive comparative information is available on the Medicare website. Very few seniors use it, however – not surprising since internet usage is lowest among this age group. Furthermore, even if they use it one year, we noted the fact that few people will ever bother to change plans, even if their circumstances warrant it.

Another option is to standardize the plans [10]. This means that each company cannot sell whatever configuration of benefit that it likes and instead it must conform to exact specifications of benefits, formularies and cost-sharing requirements. This would make it much easier for seniors to make apples-to-apples comparisons: they would pick whichever standardized plan they prefer, and then choose a company based either on lowest premiums or company reputation. One problem, though, is that the way drug insurers compete is on the basis of their formularies, so standardizing them would seem to defeat the notion that plans compete against each other by negotiating for the best formulary.

A third option would be to limit the number of drug plans that are put in front of the consumer. Medicare could take all applicants and choose a handful or two that, it concludes, provide the best value, whether it be low-end or high-end coverage. Drug insurers would still compete, and consumers would still have a choice, but the number of choices they would face would be far fewer.

The way in which Medicare organized its new prescription drug benefit is unique to the US market. Indeed, few older adults in other developed countries must face similar decisions – at least they do not have to do so for the time being. As the price for healthcare rises and governments are considering how to best organize their healthcare systems, increasing patients’ choices and their role in their healthcare has been on the rise. In the UK, for example, policy makers have introduced choice by allowing patients to decide in which hospital they would like to receive their care [101]. Healthcare consumers in the UK are going to face a challenging task: picking the right hospital for their care. Policy makers believe that providing consumers with information will allow them to make an informed decision, regardless of the number of choices that they confront.

The case of Medicare Part D makes one question the wisdom of unfettered consumer choice, for a number of reasons. First, many consumers, particularly older adults, do not have access to important information channels (e.g., the internet). Second, as the amount of information increases, so does the complexity of the decision, making it harder for the consumer to choose wisely. Third, consumers oftentimes lack the literacy and numeracy skills necessary to process and evaluate medical information [11]. Furthermore, this problem is exacerbated among older adults who tend to consume more health-related services, but have less access to information, lower literacy and numeracy levels, and greater difficulties in processing medical-related information.

In this short editorial we have briefly touched on serious concerns involving too much choice in the healthcare setting. We should, however, state clearly that we are not against choice. Choice can be beneficial in a number of important ways, such as allowing competition among healthcare providers and offering consumers the potential to receive better medical services. At the same time, offering too much choice – whether it is insurance for prescription drugs or hospitals to be treated in – might pose a number of perils. From a libertarian paternalism perspective, the policy makers’ role is to find a balance between market forces and individuals’ needs and abilities.

Financial & competing interests disclosure

The research upon which this editorial is based was funded by an Investigator Award in Health Policy Research from the Robert Wood Johnson Foundation, NJ, USA. The views expressed imply no endorsement by the Foundation. The authors have no other relevant affiliations or financial involvement with any organization or entity with a financial interest in or financial conflict with the subject matter or materials discussed in the manuscript. This includes employment, consultancies, honoraria, stock ownership or options, expert testimony, grants or patents received or pending, or royalties.

No writing assistance was utilized in the production of this manuscript.