What We Learned
- To build on the conclusions of HIS#1:
- Insurance products are unnecessarily complex
- Cost-sharing features are the most confusing features;
- Coupled with low health insurance literacy and poor insurance-related decision support complexity leads to errors with adverse health and financial consequences.
- Shopping for health insurance is a dreaded task many people go through every year
- To respond to HIS#1 attendees’ desire to go deeper, to be more specific and to describe/quantify the consequences of health insurance complexity.
Research Highlights [1]
- Too many choices under the false assumption that consumers want them.
- Metal naming of products (in ACA exchanges) conveys the false message that Gold is always more valuable than Bronze as is the case with Olympic medals, a familiar concept for consumers. By contrast naming products based on their desirability for low, medium or high medical needs is far more helpful. Here are examples of the consequences of choosing a plan using metal names versus medical need names.
Naming convention |
Over-insured |
Just right |
Under-insured |
Metal | 43% | 24% | 33% |
Medical need | 19% | 53% | 28% |
“Guided” by metal naming consumers overspend an average of $888/year.
- Most plan choices guarantee consumer overspending (academics call these bad plan choices “dominated” plans): most insurance plans offered through exchanges all but guarantee that each year consumers will overspend compared to an alternative optimal plan ($0 excess out-of-pocket [OOP] spending). Examples:
Annual Excess Premium Cost vs. Optimal Plan*
Low care need couple | Medium care need couple | High care need couple | |
Percent | 61% | 34% | 59% |
Dollars | $4,706 | $3,178 | $5,932 |
*Optimal plan excess OOP would be $0.
- Overspending for health insurance is not a rational or a “well -informed” consumer decision to:
- Buy “better protection” against unpredictable health problems
- Match family health care needs and financial situation with plan choice (as encouraged by advertisements)
- Mitigate consumers’ aversion to financial risk (e.g.: due to low liquidity, poor credit, etc.)
So, What?
Based on the lessons learned in HIS#2 researchers postulated the following consequences of health insurance complexity:
“If two-thirds of the roughly 8 million people who enrolled in the ACA in the inaugural year of the exchanges chose plans that led to average overspending amounting to $1,324, the result would be roughly $7.1 billion of excess spending each year, borne by a population with low to moderate incomes.”
This massive transfer of wealth would create little or no discernable value for the people who pay for it.
“In markets with a significant share of consumers who are not fully informed, insurers may be subject to less competitive pressure to reduce prices and improve quality—and may even compete by confusing consumers and then persuading them to purchase lucrative suboptimal plans.”
At this point we do not know to what extent the results of the studies also hold true for QHP enrollees in CT.
“In markets with a significant share of consumers who are not fully informed, insurers may be subject to less competitive pressure to reduce prices and improve quality—and may even compete by confusing consumers and then persuading them to purchase lucrative suboptimal plans.”
At this point we do not know to what extent the results of the studies also hold true for QHP enrollees in CT.
The “invisible hand” * is largely NOT working for consumers.
* From Adam Smith’s book “The Wealth of Nations”. The unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatic is the invisible hand
Next Steps
HIS#1 and 2 examined in detail how health insurance complexity makes it not only difficult for consumers to CHOOSE the right plan, it makes it likely that people will choose the wrong plan (a “dominated” plan) for their health needs and financial situation.
The logical continuation of our strategy to decompose and understand the negative societal and individual impact of HI complexity leads us to focus the next seminar HIS#3 on the difficulties consumers face USING health insurance. These difficulties can lead to postponing or foregoing needed care and often to crushing medical debt.
Remember here is the sad and pernicious equation we are trying to untangle and fix:
And the entire equation is FAR WORSE FOR MINORITIES ⇒ HEALTH INEQUITIES
Simultaneously with preparations for HIS#3, the EC2C Coalition should discuss a strategy (including additional research) to formulate legislation to dramatically simplify health insurance plans. This strategy should be supplemented by an intensification of the Coalition work on consumer HIL education and training CHWs and others to provide HI Navigation at the point of care
Thank you!
The HDI team is gratified and thankful to EC2C coalition members for your continued enthusiasm and participation in this initiative.
See the Seminar Evaluation Results
Contact: Dr. Victor Villagra; victorg.villagra@gmail.com