Insurance shopping without health insurance literacy

American Institutes for Research
October 2014
A Little Knowledge Is a Risky Thing: Wide Gap in What People Think They
Know About Health Insurance and What They Actually Know
By Kathryn A. Paez and Coretta J. Mallery

Health insurance is among the most complicated and costly products that
consumers buy. Lacking health insurance-related knowledge and skills —
or health insurance literacy — puts people at risk of choosing an
insurance product that could fail to provide needed benefits or protect
them financially.

More than half of all people surveyed were moderately or very confident
in their ability to choose and use a health plan that is best for their
family, but their actual knowledge was less.

Because many people believe they know more than they do about health
insurance, they may not fully understand their options before committing
to a particular health plan for an entire year, or they may have an
unpleasant surprise when they use health care services and end up owing
a larger amount out of pocket than expected.

Understanding Plan Type and Calculating Cost Sharing

When comparing and selecting health plans, 61 percent of people said
they were moderately or very confident that they could choose the best
health plan for themselves. Only 23 percent could identify
characteristics of a preferred provider organization (PPO) — for
example, "you may have to pay a percentage of the bill."

Three out of four people said they were moderately or very confident
that they have the knowledge to use health insurance. However, only 20
percent could accurately calculate how much they would pay for a visit
to an in-network doctor when presented with a cost-sharing scenario that
included a copayment, deductible and coinsurance.

Skills Differ by Age, Care Use, Race, Income, Education

Generally younger people were less health-insurance literate — for
example, people aged 22 to 34 got an average of 55 percent of knowledge
and skills items correct.

Likewise, people who use health care less frequently had more difficulties.

Health insurance knowledge and skills also varied greatly by race, with
blacks and Hispanics on average having less knowledge about health
insurance.

Knowledge and skills also decreased with income and education.

Implications

Choosing and using a health insurance plan can be daunting, especially
for people with little experience with the health care system and health
insurance. According to the 2013 AIR Health Insurance Literacy Survey,
many Americans are unprepared to make informed choices when selecting
and using health plans — especially younger people, minorities, people
with lower incomes and those with less education.

At the same time, health insurance and benefit structures are becoming
even more complex. As mentioned previously, consumers likely don't need
to know the exact differences between an HMO and PPO, but they do need
to consider important health plan characteristics — such as patient cost
sharing, which hospitals and doctors are in network, and the rules for
out-of-network coverage — when choosing a plan.

Without efforts to increase health insurance knowledge and skills, many
insured people will remain at risk of forgoing needed care if they don't
understand how their health insurance works or how to estimate
out-of-pocket costs.

At a minimum, counseling efforts could stress that once people are
enrolled, they should contact their health plan member services
department to get questions answered.

http://aircpce.org/wp-content/uploads/2014/10/11801-451-05_Issue_Brief_102014.pdf

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Comment by Don McCanne

Great. The insurance exchanges established by the Affordable Care Act
have created a shoppers paradise for health insurance. People can choose
from different premiums, different plans, at different levels of
coverage, with different benefits, and different cost-sharing
deductibles, co-payments and coinsurance, with different networks of
physicians and hospitals, and different rules on out-of-network
coverage, not to mention different insurance structures such as PPOs,
HMOs, EPOs, and ACOs, whatever they are.

How many times have you heard physicians, nurses, health policy wonks,
and knowledgeable others say that they have trouble figuring out their
own insurance plans. Most end up waiting until they receive their
Explanation of Benefits to find out just what was covered. How on earth
can we ever expect people with little prior exposure to the intricacies
of health insurance to be able to shop intelligently for plans offered
in the exchanges? We can't.

The tragedy is that poor choices in plan selection can have major
impacts on both the physical and financial well being of the health plan
purchasers. But when you think about it, virtually every plan offered
has significant deficiencies, especially in limiting access through
narrow networks and in increasing risk of financial hardship through
excessive cost sharing. The subsidies may help some, but they are
inadequate for most. Not only are the choices difficult to make, they
are mostly all bad choices.

Those concerned about lack of "health insurance literacy" - an almost
universal phenomenon - suggest that the solution is to increase
transparency in the exchanges. But the authors of this report suggest
that we need much more. Health insurance shoppers need additional
training to "increase health insurance knowledge and skills." Is that
the answer?

What we want is a system wherein whenever we need health care, we go get
it. Period. What we have is a conglomeration created by private and
public intermediaries that make it difficult to decide where you can go
when you need health care and how to pay for it ex-ante (premiums) and
ex-post (cost sharing). And we end up paying much more for all of the
administrative excesses that these intermediaries have created.

Do we want to make it all go away so that each of us can simply get the
health care that we need? Easy - single payer.