August 22, 2019
Health Plan Confusion and Bad Decisions
A popular idea for reducing healthcare costs is to arm consumers with detailed information about the prices of drugs and medical procedures so they can make smarter decisions.
But the academic community is reaching the opposite conclusion: people don’t understand the information they already have and are making bad decisions based on these misconceptions. The latest example is a survey of Wisconsin state workers who sometimes defer care because they are under the mistaken impression that they can’t afford it.
“Workers do not understand how health plans work, the role of deductibles, co-insurance and co-pays … and what goes into out-of-pocket costs,” concludes a report by the University of Wisconsin public affairs school, which surveyed 2,200 government workers.
Before getting into the specific findings, it’s important to note that Wisconsin’s employees are in an enviable position. They choose from just four health insurance options approved and overseen by the state. The broader implications of the report are more distressing, if one considers that millions of Americans buying insurance through the Affordable Care Act exchanges, Medicare Advantage plans, or Medicare Part D drug plans must sort through oodles of plan options with different copayments, deductibles, physician and hospital networks, or drug coverages.
The confusing patchwork of Part D plans hurts retirees’ pocketbooks, according to research in Health Affairs, which found that only one out of 20 retirees selects the cheapest drug plan to meet their medication needs. A different study found that health insurance buyers purchase overly expensive plans when they have to choose from a complex menu of options.
The Wisconsin report said state workers there are also overwhelmed:
- Nearly half of the workers who are strapped for cash said they have skipped a test or treatment and nearly a third did not fill a prescription, because they could not afford it. But these decisions are often based on inflated estimates of their out-of-pocket copayments and annual deductibles. For example, more than two out of three workers believe a physical exam costs $100. In fact, they are fully covered under federal law.
- High-deductible health plans are becoming much more pervasive, yet workers don’t understand how to use them. High-deductible plans require patients to pay all of their medical costs until they reach their deductibles, and Wisconsin workers overestimate “by a large margin” how much a physical or an MRI would cost them out-of-pocket.
- They are not clear about the different options for saving money, tax free, to defray their copayments and deductibles. For example, they confuse Flexible Spending Accounts (FSAs) offered to all state workers with Health Savings Accounts (HSAs), which are limited to high-deductible health plans and include an employer contribution.
- Most of the people surveyed admit they don’t understand their health plans – but a minority had an interest in learning more.
The onus is on employers, health care professionals, insurance companies, and policymakers to make things easier. But health insurance is complicated, and it’s also on consumers to educate themselves about how their plans work.
Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here. This blog is supported by the Center for Retirement Research at Boston College.