N°24-104: Magnitude and Social Correlates of Poor Decisions in Health Insurance

Existing research documents that consumers frequently make mistakes in health insurance markets, leading to price distortions and inefficient resource allocation. However, less attention is paid to how such mistakes contribute to health inequality, particularly when economically disadvantaged populations are more likely to make poor decisions. This study examines the distribution of choice quality in the Swiss health insurance market, using two sets of administrative linked survey data. We find that economically disadvantaged populations-those with lower incomes and less educationare significantly more likely to choose higher-coverage plans that are suboptimal given their health risks. Specifically, 49 percent of the population chooses plans that result in financial losses, with average foregone savings ranging from CHF 382 to CHF 457 annually. These suboptimal choices contribute to widening disparities in financial wellbeing.