Levitt L. Why Health Insurance Literacy Matters. JAMA Health Forum. Published online November 26, 2014. doi:10.1001/jamahealthforum.2014.0047
Much ink has been spilled over the new health insurance marketplaces created under the Affordable Care Act (ACA), from the failed initial launch of healthcare.gov last fall, to the surge in enrollment in the spring, to the debate over how many people will enroll during the open enrollment period that just began.
Larry Levitt, MPP
Meanwhile, 6.7 million people are now buying insurance through the marketplaces operated by the federal government and 14 states (including the District of Columbia), in addition to an increase of 9.1 million people covered through the Medicaid program following implementation of the ACA.
Millions of people have gone online to the marketplaces and picked a plan, sometimes choosing from among dozens of different options in their area with varying premiums, deductibles, copays, provider networks, and drug formularies.
The problem is, surveys show many people don’t understand what those words even mean.
The Kaiser Family Foundation recently conducted a nationally representative survey of 1292 adults, asking them 10 questions to gauge their knowledge of how health insurance works.
The general public did reasonably well, with 68% answering more than half of the questions correctly (though only 4% got a perfect score of 10). For example, 79% knew that a health insurance premium has to be paid every month even if you don’t use any health care services, and 72% could identify the correct definition of a deductible.
Questions involving arithmetic proved more challenging: Only 51% could correctly calculate the out-of-pocket cost for a hospital stay involving a deductible and copay, and only 16% could determine the cost of an out-of-network lab test where the insurer caps the allowable charge. (To be fair, the questions requiring arithmetic also tripped up 2 of the nation’s top health journalists in a quiz Kaiser posted. And those who don’t get a perfect score might want to watch this cartoon Kaiser also produced explaining how health insurance works.)
Not surprisingly, uninsured individuals who took part in the survey—who, by definition have less experience with health insurance—had more difficulty. For example, only 64% of uninsured adults knew that a premium has to be paid every month, only 53% could correctly identify the definition of a deductible, and only 57% knew what a provider network is.
This lack of health insurance literacy (and numeracy) has important implications for how effectively people use health care services and their insurance. Using an out-of-network physician or hospital could cost a patient thousands of dollars in higher out-of-pocket costs. Those who don’t know what a provider network is and that cost-sharing differs substantially between in-network and out-of-network clinicians and medical institutions might unwittingly run up those charges.
Similarly, how many people would think to confirm that the surgeon and anesthesiologist are in their plan’s network when having surgery at an in-network hospital? Just 41% of the general public and 29% of the uninsured knew this was not guaranteed.
Confusion about health insurance also has implications for how well people shop for health insurance and whether they are choosing wisely.
Consider a single woman aged 40 years in Miami making $30 000 accessing healthcare.gov to shop for insurance for 2015. She would be presented with 90 different plans, described using all the terms that confused many people on the Kaiser survey.
The plan listed first has a monthly premium of $156 after applying an income-related tax credit of $68. (Even people who have received tax credits don’t always know it, which is another potential source of confusion, especially because those tax credits will be reconciled based on actual income when the recipient files her income tax return for the year.)
That lowest-premium plan has a deductible of $6500 that applies to all services except for generic drugs and pays 100% of all services after the deductible is met.
For $7 more per month in premium, our hypothetical consumer could get a plan from the same insurer with a $5000 deductible and 40% coinsurance for most services after the deductible is met.
For $50 more per month in premium, she could get a plan—also from the same insurer—with a $5000 deductible, but with physician visits and generic and preferred brand-name drugs covered with copays before the deductible is met.
Even if this hypothetical woman were a well-informed consumer with perfect knowledge of how much health care she expects to use over the coming year, she would have difficulty deciding which of these 3 plans makes the most sense. Someone who doesn’t have a clear understanding of what the terms mean would find herself quite lost. And, that does not even account for the other 87 plans available in Miami from a variety of insurers and with different provider networks.
It’s important to remember that health insurance was also complicated before the ACA. In fact, the ACA simplifies things substantially in many respects. For example, plans are now standardized into so-called “metal tiers” (bronze, silver, gold, and platinum), with every policy within a tier offering a roughly comparable level of coverage on average. All insurers within a state must cover essentially the same services for insurance sold to individuals and small businesses. Also, medical underwriting is prohibited, meaning the consumer does not have to fill out pages of questions about their medical history before they know if an insurer will accept them and how much the premium will be.
As confusing as the options presented on healthcare.gov and the state-based marketplaces can be, it is a dramatic improvement over the process of buying insurance previously. Also, as part of the ACA’s rollout, many people get help applying for coverage from community-based assisters or insurance agents. But we have a ways to go before consumers sufficiently understand how health insurance works, are presented with options that they can easily understand, and can choose coverage wisely and use it effectively.
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