08/28/2009 01:37 pm ET Updated Dec 06, 2017

Loss Aversion and Opinions on Health Care Reform

The New Yorker has an interesting piece on how the public's aversion to losses (or loss aversion) limits the extent to which they are willing to favor health care reform. That piece and some others that preceded it are worth reading to understand one reason that Americans may support the general idea of reforming the health care system, but then express far less support when confronted with the possibility that their own health care plans may be affected. The bottom line is that individuals tend to value what they already have to a much greater extent than what they might gain (this is often called the endowment effect). This means, for example, that people are far less willing to part with an item that they already have than they are to forgo receiving that same item if it has not yet been in their possession.

Justin Milner explained the relationship in the Baltimore Sun a few weeks ago:

"In the health care debate, loss aversion helps to color the public's perception of potential reform. A recent Gallup poll found a clear majority of Americans favor health care reform in the coming year. But when pressed on specific aspects of the health care, Americans are decidedly loss averse. Almost 90 percent of Americans want to be able to choose any doctor or hospital they like, and 77 percent of Americans say it is important to have the option to keep the health insurance plan they have now. In sum, we may want change and reform - but not at the cost of any of our current options."

In other words, those that already have health insurance probably overvalue that insurance relative to what would be available to them under health care reform legislation, and this may be driving down support for reform.

Fortunately, the survey released by the Economist yesterday provides a nice addendum to these readings by illustrating how loss aversion can significantly alter public opinion depending on how a question is framed. In this survey, the sample was split randomly into halves. The first half of the sample was asked to choose which of the following plans they preferred:

"A plan with no lifetime limit on benefits."


"A plan that limited the total amount of benefits in your lifetime to $1 million, but saved you $1000 per year."

Four out of five respondents (80%) answering the question framed in this way selected the first option. They'd much rather have a plan with no limit on benefits than save $1,000, but be subjected to a $1 million lifetime limit.

The second half of the sample chose between these options:

"A plan that limited the total amount of benefits in your lifetime to $1 million."


"A plan with no lifetime limit on benefits, but cost you an additional $1000 per year."

Functionally, these options are equivalent to those presented to the first half of the sample. In the first presentation, the limited plan will increase the respondent's wealth by $1000 per year by saving him or her that money; in the second presentation, the limited plan will increase the respondent's wealth by $1000 per year because that respondent will not have to pay the cost of the unlimited plan. However, the different framing of the options (emphasizing "savings" rather than "cost") is critical. Among those choosing from the second set of options opinion was more closely divided--44% chose the plan with limited benefits while 56% chose the unlimited benefits option. In short, more Americans wanted the unlimited plan when it meant forgoing a savings of $1,000 per year than when it meant incurring a cost of $1,000 per year.

It is also important to note that the changes in how the options are framed do not affect all groups equally. In particular, loss aversion appears to be conditioned by income. This makes sense since wealthier respondents may not be as sensitive to a $1,000 per year change in their wealth as those with lower incomes. To demonstrate the relationship, the chart below compares the percentage of respondents who would choose a plan with no lifetime limit depending on whether they received the question with the "savings" frame or the "cost" frame. Respondents are broken down into three income categories.


What stands out from this chart is that respondents in each income category are much more likely to chose the option with no lifetime limit when they received the question with the savings frame. However, under the "cost" frame, responses differed more significantly across income categories. Thus, among respondents making less than $40,000, support for the plan with no lifetime limit was 32 percentage points higher when that plan was presented as a way to forgo a savings of $1,000 rather than incurring a cost of $1,000. The framing effects were much smaller for those with higher incomes.

Of course, these aren't actually the choices being presented to Americans during the health care reform debate, but this survey experiment does provide a neat way of illustrating not only how the framing of health care reform as a potential loss can affect support for the measure, but also among which groups those frames will be most effective. Indeed, the New Yorker article ends by noting that it may still be possible to gain public support for health care reform despite the public's tendency toward loss aversion:

"The key may be to work with, rather than against, people's desire for security. That's surely one reason that Obama has consistently promised people that if they like the health insurance they currently have they can keep it. This promise will make whatever reform we get more inefficient and less comprehensive, but it also assuages people's anxieties. It might even be possible to use the endowment effect and the status-quo bias in the argument for change. After all, although people tend to feel that they own their health insurance, their entitlement is distinctly tenuous...Changing the system so that individuals can get affordable health care, while banning bad behavior on the part of insurance companies, will actually make it more likely, not less, that people will get to preserve their current level of coverage."

For the public to support health care reform, the reform needs to be framed as something that will help keep most individuals (who do have insurance) from losing what they already have. Furthermore, the analysis of the Economist survey suggests that individuals with lower incomes are most likely to respond to such an attempt to re-frame the debate in this way. This is notable since there is much ground to be gained among these individuals. In fact, the same survey shows that respondents in the lowest income group are substantially more likely than others to be unsure about whether the health care reform plan would make them better or worse off. This group appears to have their minds least made up on health care reform and their opinions may be the most susceptible to the efforts by both sides to frame this issue during the coming weeks and months.