A Perilous Gap in Health Insurance Literacy

This was published as a Wall Street Journal Think Tank column on September 4, 2014.

It’s not a news flash that health insurance can be complex and confusing. But the health insurance maze can be a problem, especially if you have never had health insurance before or have not had it for a long time. That’s the case for about half of the uninsured and for many people enrolling in the new insurance marketplaces set up under the Affordable Care Act.

Consider:

• 37% of enrollees don’t know the amount of their deductible. The deductibles in the plans sold on the exchanges are large; on average $2,300 for single coverage in the most popular plan, a Silver plan.  For many people their deductible will be as important to their family budgets and their ability to get health care as the premium they pay, especially if they get a premium subsidy as most do in the exchanges. If people don’t understand their deductibles and copays they may pick a plan based solely on the premium and be in for a nasty surprise when they begin to use care and their deductible hits. It can also be important to know if services such as some physician visits and tests or generic drugs are exempt from the deductible.
• Speaking of the subsidies, 46% of enrollees in the new insurance marketplaces say they’re getting a subsidy, when official numbers indicate about 85% actually get them.  And even among those who know they’re receiving a subsidy, 47% don’t know the amount of the subsidy. A political implication is that many people getting help from the ACA don’t know it.
• Many enrollees also don’t grasp basic insurance terms. A study of people eligible to enroll in the marketplaces showed that many were not confident in their understanding of a premium (36%), deductible (31%), copayment (28%), coinsurance (48%), maximum annual out-of-pocket spending (38%), provider network (36%), covered services (35%), annual limits on services (39%) or excluded services (40%).
• People with lower incomes were even less likely to understand the key elements of insurance. That’s no surprise, but it means that people who need coverage the most understand it the least.

People gaining coverage also have to understand the intricacies of provider networks in the plans they choose, especially if they have a health problem requiring specialty care. Otherwise, they could face high out-of-pocket costs to see out of network providers. It can also be important to understand how drug coverage is tiered – with brand-name drugs costing much more than generics – if people are dependent on expensive drugs.

Social scientists call this “health insurance literacy.” People need to know how to read and write in order to function as citizens and in today’s economy. But with almost everyone now required to have health coverage they also need to know how health insurance works.

The newly covered will learn as they go, sometimes with help from family members and friends. The news media – people’s main source of information on the ACA and health issues – have a big role to play. Government at all levels, community organizations, health care institutions and health professionals all have a role to play. Unfortunately, we all get tested on our knowledge every time we choose a plan, go to the doctor or fill a prescription.