Complex Health Care Plans Create Consumer Confusion

Many consumers are spending more than necessary as a result of choosing the wrong health insurance plan.

Health care reform has led to more Americans gaining insurance benefits, but a recent study found they may not be choosing the plan that is right for them as individuals.

A study published in JAMA found that complex health care plans have led to consumers choosing insurance plans that do not fit within their budgets.

"While there has been a trend in health reform towards greater plan choice, recent research suggests that most consumers don't choose plans that are financially sensible,” said Carnegie Mellon University behavioral economist Saurabh Bhargava. “In our own work, in which we analyzed the plan choices of over 20,000 employees at a Fortune 100 firm, we found that a majority of employees chose health plans that were inferior to other available plans, regardless of their eventual health outcomes. These poor plan choices led to average over-spending equivalent to paying an additional 41% in plan premiums. These mistakes are of first-order importance."

Since the passage of the Affordable Care Act (ACA), a large array of various plans are available to choose from with a goal of encouraging beneficial competition among insurers. Plans categorized in metal tiers were formed to help pick the best option, however, these plans were found to have the potential for the most harmful mistakes among enrollees.

Researchers provided an example of how the wrong plan choice could have a negative financial impact. A couple who is 40-years-old, has no children, and lives in Pittsburgh, Pennsylvania, would have had 54 plans to choose from ranging in annual premiums from $3648 to $10,584 if they narrowed their choices to 4 of the least expensive plans in each metal tier.

If the couple had little need for medical care, choosing the bronze plan would result in total spending of $3648, which includes premiums and out-of-pocket costs. If they choose the platinum plan, they would have had more than double the costs at $8,748.

However, if they anticipated poor health in the year ahead that pushes them over the spending limit, they would face total costs of $11,184 with the gold plan and $17,292 with the silver plan. These plan choices can significantly influence consumer costs, with the differences in costs applicable to people eligible for premium tax credits under the ACA.

Researchers believe tools to help decision-making, such as cost calculators, can help improve plan selection among consumers. However, superior strategy should be put in place to improve the choices for consumers and encourage insurer competition by pushing for simplification of different insurance plans.

"The ACA deals with the problem of consumer misunderstanding by requiring insurance companies to publish standardized and simplified information about insurance plans,” said Professor of Economics and Psychology, George Loewenstein. “However, presenting simplified information about something that is inherently complex introduces a risk of 'smoothing over' real complexities. A better approach would be to require insurance companies to offer truly simplified insurance products that consumers are capable of understanding."