Private Law Alternatives to the Individual Mandate

Despite excitement on the left about a move to universal health care and on the right about a more state-driven model, major policy changes in a time of divided government are not imminent. Yet with the recent repeal of the individual mandate, the current system may be crumbling. The Affordable Care Act guarantees coverage to people with pre-existing conditions and prohibits insurers from charging them more than healthy people. But the mandate was supposed to draw cheaper and healthier people into the risk pools to balance out costs. Without the mandate, healthy people can simply wait to buy insurance until they get sick. Insurers are left to cover an increasingly sicker, more expensive population, and premiums skyrocket, starting a chain reaction ending in the so-called “death spiral.” The model only works if healthy people purchase insurance, and now there is little to prompt them to do so. This Article relies on private law to solve the problem. It looks to both neoclassical economic theory and principles of behavioral economics to better understand what motivates (and deters) the purchase of health insurance. It then explores economic incentives and “nudges” that will encourage healthy individuals to sign up for policies without forcing them to do so. It suggests co-opting practices previously deployed for nefarious purposes to prompt behavior that policy now seeks, such as insurers offering low introductory rates, long-term contracts, and limited exit rights. Other options include insurers selling return of premium-style policies or policies with a generosity frame, simplifying plan offerings, or automatically enrolling the uninsured but giving a right to opt-out. These private law solutions—many of which would not require congressional action—hold the promise of ultimately lowering prices without the government forcing action or taking away the right to make autonomous choices

Revisiting Incentive-Based Contracts

Incentive-based pay is rational, intuitive, and popular. Agency theory tells usthat a principal seeking to align its incentives with an agent\u27s should be able to simply pay the agent to achieve the principal\u27s desired results. Indeed, this strategy has long been used across diverse industries-from executive compensation to education, professional sports to public service-but with mixed results. Now a new convert to incentive compensation has appeared on the scene: the United States\u27 behemoth health-care industry. In many ways, the incentive mismatch story is the same. Insurance companies and employers are concerned about constraining the cost of care, and patients are concerned about quality of care. Physicians lack an adequate financial incentive to pay attention to either. Health care\u27s recent move away from the traditional fee-for-service compensation model to incentive pay is perhaps unsurprising

Contract Theory and the Failures of Public-Private Contracting

The market for public-private contracting is huge and flawed. Public-private contracts for services such as prisons and welfare administration tend to result in cost savings at the sacrifice of quality service. For instance, to cut costs, private prisons skimp on security. Public law scholars have studied these problems for decades and have proposed various public law solutions. But the literature is incomplete because it does not approach the problem through a commercial lens. This Article fills that gap. It considers how economic analysis of contract law, in particular efficiency theory and agency theory, bear upon the unique problems of public-private contracting. Public-private contracts are subject to systematic biases that cause the parties to impose a cost on service recipients in the form of low quality service. Because there is essentially no competitive market for these services, the contracting parties are not forced to internalize these costs. As a result, contracts tend to be underpriced. Thus, what appears to be a cost-saving mechanism is often, in fact, a systematic market failure. This Article proposes two unconventional and counterintuitive solutions to force the parties to internalize the cost of poor service provision. First, it suggests reading into public-private contracts a mandatory duty to act in furtherance of the public interest. Although efficiency theory assumes that mandatory restrictions on contracting parties are inefficient, a mandatory rule is justified, here, because the law must protect non-parties to the contract who cannot adequately protect themselves. Second, this Article argues, based on behavioral economics studies, that these contracts should be less detailed. Although agency theory suggests that detailed tasks, performance incentives, and monitoring mitigate agency costs, those mechanisms do not work with public-private contracts. Studies indicate that less detailed contracts that rely on social norms such as reciprocity may better align incentives

Can Moral Framing Drive Insurance Enrollment in the US?

To encourage health insurance uptake, marketers and policymakers have focused on consumers’ economic self-interest, attempting to show that insurance is a good deal or to sweeten the deal, with subsidies or penalties. Still, some consumers see insurance as a bad deal, either because they rationally exploit private risk information (“adverse selection”), or irrationally misperceive the value due to cognitive biases (e.g., optimism). As a result, about 30 million Americans remain uninsured, including many who could afford it.At the same time, polling suggests that Americans view health insurance through a moral lens, seeking to protect those with pre-existing conditions especially. In other markets, “green halo” and “noble edge” frames have been shown effective. As part of a broader research agenda on private law solutions to healthcare policy, we test whether moral framing could support insurance uptake. We report four phases of research.First, to understand current health insurance marketing in America, we collected the universe of advertisements from the state and Federal exchanges and coded a 10% sample for themes of economic self-interest versus three moral themes: helping others, helping community, or responsibility. In the 199 ads in which any theme appeared, 191 ads (96%, CI: 92-98%) centered on economic self-interest.Second, we enrolled 344 uninsured Americans in an online, vignette experiment where we offered various insurance plans. Over a baseline where 43.6% were willing to purchase insurance, we found that framing an economically-identical plan around generosity yielded an 11.8% higher uptake.Third, we conducted five focus groups with 32 adults, including two groups in Spanish. We explored variations in the frames and probed for resistance, to prepare for the next phase of research.Fourth, using an online advertising platform (Google), we purchased 5.6 million advertising impressions in English and Spanish, targeting higher-income Americans nationwide during the 2021 open-enrollment period. Consumers saw advertisements from a control group (highlighting economic self-interest, with real ads collected from the field) versus three experimental groups (helping others, helping community, or responsibility). We measured whether consumers clicked to “shop now” on the healthcare.gov website (1.01% click-through rate (CTR) in English and 1.38% CTR in Spanish at baseline). “Helping community” ads increased CTR over the control by 14.5% in English and by 33.7% in Spanish. Ads emphasizing “responsibility” increased CTR by 30.3% in English, though reduced CTR by 14.7% in Spanish. “Helping others” ads increased CTR by 9.8% in English but decreased CTR by 13.9% in Spanish. All of these results were significant at the .01 level and were robust to demographic controls and subgroup analyses, using individual and county-level covariates.Although the optimal approach varies, the status quo self-oriented message of economic rationality was not the top-performing approach for either language group. Scaled up to real-world advertising budgets, back-of-the-envelope extrapolation suggests that under moral framing, millions of additional Americans could be driven to shop for health insurance

Facilitating Incomplete Contracts

Contract law abhors incompleteness. Although no contract can be entirely complete, the idea of a purposefully incomplete or underspecified contract is antithetical to lawyers’ ideals of certainty for the parties and for the law. Indeed, contract law is designed to incentivize parties to specifically articulate their intentions. Yet there is a growing body of interdisciplinary work in economics and cognitive psychology demonstrating that highly specified contracts tend to stifle intrinsic motivation and innovation, whereas less-specified contracts — particularly in public-private contracting, IP, and contracting for innovation — can induce higher effort levels and a more cooperative principal-agent relationship than the traditional approach. Nevertheless, there remain both entrenched doctrinal and sociolegal deterrents to drafting less-specified contracts.This Article argues that the existing doctrinal roadblocks to incomplete contracts are out of step with the normative goals of commercial contracting — promoting efficiency and incentivizing commercial activity. The indefiniteness doctrine and current approaches to contract interpretation, for instance, over-deter the use of incomplete contracting even when it would be efficient. Ultimately, this Article suggests a new doctrinal approach for those contracts where the law should incentivize incomplete contracting, borrowing from principles of constitutional interpretation: dynamic contextualist interpretation. Courts should look not only to party intent at the moment when the contract was formed but should consider how intentions developed during contract performance. Rather than punishing incompleteness, flexibility should guide determinations of validity and questions of interpretation

Price Transparency and Incomplete Contracts in Health Care

Market-based health care reform solutions, which have grown in popularity and possibility, suggest when patients act more like consumers, health care prices will decrease and unnecessary medical procedures will occur less frequently. This Article argues that these benefits of a market-based health care system cannot occur without price transparency in health care contracts. Through synthesizing theories of law and economics and behavioral science, this Article proposes that contract theory provides the most desirable solution: courts enforcing a penalty default of $0 when health care contracts do not provide a price and it would be reasonable to do so