Employee WellnessHealthcare

Do We Really Understand Our Health Insurance?

Most Americans Know Too Little About Their Health Plans

So you think you know what’s in your health insurance plan. Studies show you actually may not.

UnitedHealthcare’s 2016 “Consumer Sentiment Survey” tested consumer knowledge of how insurance works by asking participants to define the four basic insurance components: “plan premium, deductible, coinsurance, and out-of-pocket maximum.” A mere 7% of those surveyed had a complete understanding of the four concepts.  While most understood the terms premium and deductible, only about a third understood the other two terms.

And people really don’t know the cost of medical services. Interestingly, over half surveyed would use wearable fitness trackers at work as part of a wellness program while only about a third would avail themselves to telemedicine, though most are “very likely” to access health services via smartphone or computer.

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People want good health plans, but do they know whether they have one or not?

A few years before UnitedHealthCare’s survey, a Carnegie Mellon University economist, George Loewenstein, conducted a similar study that was later published in the Journal of Health Economics. He surveyed 202 employees’ understanding of their employer-sponsored health insurance by testing their knowledge of those same four insurance terms. The study showed not only that most people did not understand two or more insurance concepts but also that most people thought they understood insurance but didn’t.

Only 14% correctly answered questions defining all four terms.

And only 11% could figure out what their insurance would cover given a hypothetical four-day stay in a hospital for a procedure. Loewenstein too admits, “I have a PhD in economics and I’ve spent a bunch of time giving insurance companies feedback about policies, and I still find them difficult to understand.”

Most Americans Don’t Know What Their Policy Covers Until They Have to Use It

It’s complicated. Even though some participants understood each of the four terms of Loewenstein’s quiz, they didn’t understand the costs—despite legally mandated benefits summaries that include the definitions:

And yet another poll, a national survey conducted by DataWatch concluded that private health insureds understood their basic coverage but under or overestimated coverage for specific items like prescriptions drugs, emergency, mental health and substance abuse services. The outcome revealed that most people don’t understand their coverage until they have to use it. As a result, the researchers recommended employers do more than hand out information booklets about health coverage to their employees.

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These surveys reveal that most Americans don’t know what they’re buying in health insurance and don’t know how to read their policies. Loewenstein suggests health insurers simplify their policies. Ideally, he says, health insurers collect copayments only: no deductibles, co-insurance or other cost sharing. In that way, people can figure out what they’ll pay for a hospital visit.

What is CoInsurance Anyhow?

Insurance consultants, PolicyGenius, conducted their own survey that found only 4 percent of Americans know the insurance terms that determine what they’d pay for medical services and drugs:  

  • Out-of-pocket maximum (annual maximum payments a person makes out of pocket): 42% defined term correctly but 67% thought they did
  • Co-pay (amount a person pays for doctor’s visits, lab tests, or drugs): 53% defined the term correctly, while 83% believed they did.
  • Deductible (the amount a person pays before insurance pays): 51% answered correctly but 74% said they understood the term.
  • Coinsurance (percentage of costs a person pays for health costs after the deductible is paid): 22% knew while 47% thought they did.

As to purchasing health insurance, Jennifer Fitzgerald, CEO and co-founder of PolicyGenius, says, “It’s quite possibly one of the most complicated decisions anyone would have to ever encounter.” There’s so much variance in policies that balance high or low deductibles against co-pays and coinsurance for certain services, depending on whether those services are in or out of network, among a host of other variables.

And then there’s the question of which doctors, networks, and hospitals to select, along with the price comparison from one policy to the other. It’s overwhelming, confusing, and distasteful. No one wants to think about health insurance (and its associations with illness and injury), let alone study it. You can’t avoid betting on your current and future health as well as the health of your loved ones. What if you make the wrong bet?

You May Be Gambling Your Life on Low Deductibles

Most healthy people gamble on remaining healthy, and so opt for a high-deductible, less expensive plan (when they should be calculating annual out-of-pocket maximums and co-pays). But studies also show that most people don’t re-visit their health insurance selection in subsequent years when their health status changes due to age or other factors. That could end up a costly, even fatal inertia, according to Loewenstein in his August 2016 article, “The Simple Case Against Health Insurance Complexity.”

Loewenstein’s research found that the majority of employees of a Fortune 500 company chose plans that ultimately cost them more, when asked to build their own policy from a choice of deductibles, coinsurance rates, copayments, and out-of-pocket maximums. Other than these variables, the offered plans were identical.

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61% (especially lower earning employees) spent approximately $353.00 more annually on plans with lower deductibles but overall higher total spending (“dominated” plans)  than if they had chosen higher deductible policies with lower overall annual spending. Results differed in later studies when the choices included examples of how plan features figured into the total health spending equation in different scenarios. When the costs and savings were transparent, people made better choices.  

What’s The Cost of Confusion?

People who don’t know what they’re buying may be over or under spending to get coverage that doesn’t fit their needs, which often results in unpleasant surprises when the medical bills arrive. In fact, when your earnings and health insurance policy force you to choose between taking your child to the hospital for a high fever and a car repair, as Loewenstein points out, the consequences may be fatal.

And policies with low or no deductibles may reduce overall annual health costs for families, but they also most likely eliminate important coverage for certain kinds of tests or preventative care. So is the savings actually a savings in the long-run? Not if that preventative care, say, an exercise and diet plan, prevents eventual chronic diseases that rack up expenses over time.

And although people with employee-sponsored policies fared better on these health insurance  knowledge surveys than those with self-paid plans, most Americans just don’t understand what their policies do and don’t do until it’s too late. Uninsureds knew the least, even the ordinary word “premium” escaping their knowledge base.

As Bill Gates once said,If you can’t explain something simply, you don’t really understand it.”

That’s why Loewenstein and others believe that education and transparency alone are not enough. National and state policy needs include the health insurance industry’s simplifying and standardize policy options to protect consumers from purchasing against their own interests. Others disagree. More choices allow consumers to design what’s right for them.

 

 

 

 

 

 

 

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