The Social Construction of Health Care Biases

Ezra Klein said something important but, I think, slightly wrong about what kind of health insurance people prefer:

People tend to prefer PPOs to HMOs. PPOs tend to be more expensive than HMOs. But HMOs tend to have a higher actuarial value. The average PPO is in the low 80s, while the average HMO is 93 percent.

The reason is that PPOs make up for their easy access to specialists by building in more copayments and cost-sharing. HMOs offer more first-dollar coverage, and though specialists are more irksome to access, there’s less cost-sharing. But people prefer ease of access to coverage, so the HMO’s actuarial advantage doesn’t translate into a market preference. In other words, actuarial value isn’t everything.

It’s worth observing that Danish people have the reverse set of preferences.


Danes have two insurance options to choose from for outpatient care. Group 1 is an HMO-style system in which all doctors’ visits are free, but in order to see a specialist you need to get cleared by your primary care physician. Group 2 is a PPO-style system in which there’s cost-sharing when you see a doctor (the government still pays most of the tab, but you need to pay some) but you have the right to go see a specialist directly. Group 1 includes a staggering 98.5 percent of the population indicating an overwhelming preference for cheaper over easier access.

I think the strong, but opposite, US and Danish preferences are mostly about status quo bias. In the United States, HMOs were a relatively new innovation and people have proved willing to spend a considerable amount of extra money to avoid them. In Denmark it’s the reverse, and the Group 2 option is an innovation after decades of non-availability, and Danes seem uninterested in giving up their traditional free medicine in order to get more flexibility.