Sweet spot for Obamacare exchanges: some competition, but not too much?

This exchange in a Modern Healthcare interview of Douglas Hough, author of Irrationality in Health Care: What Behavioral Economics Reveals About What We Do and Why, may have some implications for the design of the ACA insurance exchanges:

[Jason] Shafrin: People often perform better, in terms of choosing better when they have fewer choices. Why is that the case? Most economists think that more choice is better.

Hough: What behavioral psychologists and behavioral economists have discovered is that more choice is not necessarily better. The problem is regret bias. If they are shown five things and are asked to choose among them, they can probably choose well. But if they are offered 25 or 50, people end up not choosing at all. This is actually what happened at the beginning of Medicare Part D, when patients were given an extraordinary number of prescription drug plans choices, and a good number of the elderly were paralyzed by having to make that choice. My mother was an incredibly successful business woman, but when at the age of 85 she was faced with the choice of among 45 plans in Virginia for Part D, she just threw up her hands and said, “Well, I don't know which one to pick. Doug, you pick one for me.”

California, where state officials are committed to making the exchanges work well, currently has 13 insurers participating in the exchanges. The state is one of very few that engaged in "active purchasing," negotiating with would-be participants to hold prices down, with good results: Covered California's recently posted price estimates have been a pleasant surprise. The Hough conversation above made me wonder, though: suppose exchange administrators went a step further an set up competitive bidding, allowing only, say the top five bids to sell on the exchanges?

It must be acknowledged that Hough offers a different perspective on avoiding choice overload generally:

Shafrin: But who chooses the choices?

Hough: There are a couple of ways which I think would be bad. For instance, some expert sits down and decides, here are the 10 best choices. That expert might not have the right set of preferences (for) an individual. One of the ways of doing this is to offer an individual five different choices randomly chosen from the 45. If you don't like one, we can give you five more. Or if you like this one, we can give you a couple of others ones to compare it with. You can continue until you as an individual are satisfied that you have the right plan.

 That is not specifically in reference to the ACA, though. Competitive bidding on the exchanges could be straightforward enough, it seems to me: who offers the most comprehensive coverage with the best choice of providers for the least cost? To compete, insurers might have to be creative in creating the right incentives for providers and patients alike to avoid wasteful treatment. But setting up criteria for assessing the resulting bids seems doable (indeed, California rejected some bids).

I suspect that there's substantial research on how to best generate productive competition in the exchanges (I will check..). Too bad most states aren't even trying.