This week at Wonkblog, Sarah Kliff reported on a fascinating study that shows that Americans are surprisingly ignorant about health insurance basics. The study, conducted by a Carnegie Mellon University economist, gave subjects a multiple choice quiz that asked them to define four basic health insurance terms: deductible, co-pay, out-of-pocket maximum, and coinsurance. All the subjects had employer-sponsored health insurance.
You want to know how many people got all four questions right? Fifty percent, maybe? A third? A quarter?
Try 14 percent.
Another question gave the respondents a simple insurance plan and asked them to calculate the cost of a 4-day hospital visit. Just 11 percent of them got that question right; only 14 percent more of them came within $1,000 of the answer.
These results shouldn’t be as surprising as they are. Every time I’ve enrolled in employer-sponsored health plans, all human resources did was provide some forms and a thick booklet describing benefits, which I was left to figure out for myself. I imagine that most people have had similar experiences. And if no one ever bothers to define basic insurance terms for you, it’s not surprising that you’d end up confused. Even study author George Loewenstein admits, “I have a PhD in economics and I’ve spent a bunch of time giving insurance companies feedback about policies, and I still find them difficult to understand.”
Loewenstein’s proposed solution to the problem, though, is not so awesome. Ideally, he would want insurance companies to charge only co-payments and “eliminate deductibles, co-insurance and every other form of cost sharing.” But that would incentivize many people to make bad health care decisions and avoid necessary treatments.
A better solution would be to require insurers to: a) simplify the structure of their insurance plans and then: b) present information about the plans in the clearest way possible. Additionally, employers should be required to provide information sessions for new employees that explain their health plans — and that don’t skimp the basic definitions that clearly are a source of confusion, but that many people may be too embarrassed to ask questions about.
Better yet, of course, would be a single payer system, which would simplify matters even further by making private insurance unnecessary. The other day, Harry Reid claimed that we will get to single payer eventually, and that Obamacare is a step toward that. I’d like to believe him. We’ll see.