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How much do people understand their health insurance?

Health Care and Health Insurance
by Chris Merkel
insurance policy
insurance policy

While people often express concern about the rising cost of their health insurance, there is also plenty of evidence to suggest that part of their frustration with coverage arises from a lack of familiarity with industry basics, as well. Even people who know what co-pays and premiums are and what those costs mean for them might not fully understand other basics like co-insurance and deductibles.

While there can be a lot of information for people to consider when choosing the best possible health insurance options for themselves or their families, it's important to note just what a lack of understanding can ultimately truly end up costing them.

Today, nearly 30% of people say they have put off seeking health care of some kind - or are doing without it entirely - because they are concerned about how much it would cost, according to new research published in the Journals of the American Medical Association. However, people who don't understand what their coverage entails are far more likely to fall into that category than those who do. The people with more understanding of coverage were also more likely to seek preventive or non-preventive care.

Understanding the impact
Almost 24% of people whose health insurance literacy was in the lower half of scores among respondents did not seek preventive care due to cost concerns, compared with only about 11% for those who scored in the top half. Likewise, almost 20% of lower-scoring participants did not seek non-preventive care (such as an urgent care visit or MRI) versus less than 13% of higher-scoring counterparts.

Moreover, the study found that high literacy had a strong correlation to income and an understanding of math. 

Consequently, it's fair to say that people with low health insurance literacy are more likely to make uniformed, potentially detrimental decisions, not only where it concerns choosing the coverage that works for them but also as it relates to actually seeking care.

Other cost concerns
At the same time, it seems offerings that would reduce some of the issues related to cost - such as enrollments in health savings accounts, health reimbursement accounts, and so on - are often not taken advantage of, even when they're available. A recent study by Alegeus found that half of all people failed a basic true-false test specifically related to health insurance, and 42% failed financial fluency quiz.

In addition, roughly 1 in 3 people who have health-related financial accounts - which are typically tax-advantaged in some way - passed such a test specifically about what those accounts offered. Furthermore, half of those polled who said they were confident in their knowledge on all these subjects still failed binary-response tests about them.

Alegeus estimates that by not enrolling in tax-advantaged accounts, Americans left roughly $85 billion in tax savings on the table in 2018.

Knowing what's available
In a 2018 study of Hispanic Americans who were attending a health event related to insurance enrollment, literacy was found to be an even greater issue. Attendees at such an event were chosen for study because they could reasonably be assumed to be the most vulnerable to making uninformed decisions, and many might not speak English natively. When asked what they knew about the Patient Protection and Affordable Care Act, 70% of respondents replied they knew little or nothing about it. The study, published by the U.S. National Library of Medicine at the National Institutes of Health, further found that people who didn't responded in this way also had the most difficulty in choosing the right insurance plans or comparing two or more different plans.

The researchers therefore surmised that greater literacy for health insurance would broadly improve access to care, and the confidence people had in actually obtaining it when needed.

Getting it right
With that in mind, it should come as no surprise that people who don't truly understand even basics like deductibles and out-of-pocket maximums often opt not to enroll in coverage at all, according to research a team of doctors writing for the New England Journal of Medicine. Even those who seek help - such as from trusted care providers - might not find the answers they need because of how much confusion can surround individual decisions.

Thus, ongoing multimedia education and support around these topics is more important than ever, the report said. Online resources, in-person information, printed materials and so on can help bridge the gaps in consumer understanding that lead to lower rates of enrollment and less-informed health care decisions. At the same time, however, additional transparency around what insurance or care costs - and why it costs what it does - can also improve consumers' confidence in critical health-based decision making.

To that end, it is incumbent upon health insurers and care providers to go the extra mile in making sure people have the resources they need to really understand their options. Further outreach may help bring more people into the fold, allow them to avoid slipping into coverage gaps, and generally keep them more satisfied with whatever coverage options they choose based on their financial and health needs.

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