Only 14% of consumers surveyed understand basic insurance terms such as "copayments," and "deductibles." They will make "disastrous decisions," when health insurance exchanges come online in a few weeks, says an economist and researcher.
With health insurance exchanges expected to launch on Oct. 1, health insurers have been busy creating websites and other materials to help guide their potential customers through the new online marketplace.
Typically the insurers use an interactive resource that walks consumers through the HIX process, provides information about available tax credits, and produces a customized summary of options. By all reports these websites are well received.
A study from Carnegie Mellon University suggests, however, that despite these efforts, the root problem for consumers is that health insurance has become so complex that consumers just don't understand it. The study casts doubt on whether consumers can even make informed healthcare purchasing decisions.
The study, published in the Journal of Health Economics, looks at two surveys—one covering insurance basics and a second asking respondents to figure out their share of a hospital bill.
Study Results
The results were "dismal," says George Loewenstein, PhD, a professor of economics and philosophy at CMU, and the lead researcher on the study. Only 14% of respondents understood basic, everyday insurance terms such as coinsurance, copayments, deductibles, and out-of-pocket payments.
Only 11% were able to calculate their share of a hospital bill. In the interest of full disclosure, however, I have to admit that question stumped me, too
By the way, the respondents were between the ages of 25 and 64, had private health insurance, and were the decision makers about their medical care. So they had some basic knowledge of the system.
Behavioral economists at the University of Pennsylvania, Stanford, Harvard, and Yale universities and the University of Chicago, as well as professionals at a health insurance company also participated in the research.
Disastrous Decisions
The findings confirm Loewenstein's worse fears that few people actually understand even the basic fundamentals of the medical insurance programs they pay for each month. "Insurance plans incorporate all sorts of incentives designed to encourage customers to make specific types of decisions. What is the likelihood [consumers] will respond to these incentives if they can't understand the most basic elements of plan design?"
Even scarier, he says, is the thought of millions of consumers, most previously uninsured, deciphering the intricacies of the bronze, silver, gold, and platinum offering on the exchanges. "Consumers can't be engaged in this process if they don't have basic knowledge of how health insurance works. They'll make disastrous decisions," Loewenstein states.
While it's great that navigators and all kinds of assisters will be out in the field helping consumers work through the exchange offerings, Loewenstein thinks there is a better way. He would like to see is a simplified health insurance plan offered—not simple in terms of coverage—but in terms of how it pays for treatments and procedures.
A Better Way
Under his ideal plan, copayments and transparency would rule the health insurance world. Cost sharing, deductibles, and co-insurance would all disappear. Paying for healthcare would be similar to going to a restaurant and ordering from the menu. The prices would be right there.
Loewenstein acknowledges that copayments would have to increase and consumers would certainly face the sticker-shock of how much an MRI or CT actually costs. The upside is that healthcare costs would be predictable. No more waiting for your insurer to send along a statement of benefits detailing a bunch of confusing adjustments.
Loewenstein tested his plan on the survey respondents, who he says were somewhat more likely to make lower cost choices, such as going to an urgent care clinic under the simplified plan, and were more able to understand the cost ramifications of that decision under the simplified plan.
Loewenstein says he has asked health insurance executives why coverage is so complicated. He has been told that a lot of the complexity arises from the incentives built into plans to get consumers to do things such as go to an urgent care center for an earache or to shop around for the best price on certain procedures.
The million dollar question of course is: how can consumers take full advantage incentives if they can't make sense of their policies?
Loewenstein has reached out to insurers to pitch his simplified health plan without success. "It seems like a no-brainer to me, but so far insurance companies have a very little appetite for the idea."
Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
