How health exchanges are drowning consumers in a sea of confusing choices

Are insurance policies too complicated to understand? They always have been and always will be unless there are changes in the way policies work, or until there are rules to make it easier for buyers. Insurance is threaded with difficult concepts such as risk and pricing trade-offs, and way too many numbers for most people. It’s not surprising that seniors don’t shop for Medicare Advantage plans even though they can save oodles of money by doing so, or that the government automatically reenrolled 4.5 million marketplace exchange customers last year — 38 percent of all the sign-ups. Left to their own devices, these millions of Obamacare policyholders may never have re-upped. In buying insurance, shoppers must weigh too many variables and face too many unknowns.

To get a sense of what shoppers encounter, I looked at policies on the Oregon insurance exchange for a 55-year-old woman with an income of $75,000 living in Salem. There were 70 choices: 27 bronze plans, 24 silver, and 19 gold that included 43 PPOs (preferred provider organizations where you can leave the network) and 27 EPOs (exclusive provider organizations where you can’t). The site did allow shoppers to zoom in on policies that were in their price range, say all those with monthly premiums of $600 or less. There were 57. Next the hard work began. What was the best combination of deductibles, out-of-pocket maximums, coinsurance, and copays — all of which figure into the total someone will pay for health expenses?

To see how easy it is to compare those variables, I focused on how five gold plans described their cost-sharing arrangements for emergency room care, a costly and unpredictable service anyone might need. One plan disclosed it would charge $250. Another said patients would have to pay 10 percent coinsurance after satisfying the deductible. A third advised there was a $250 copay after the deductible was met plus another 20 percent coinsurance after the deductible. A fourth plan required a $100 copay before the deductible and 20 percent after a patient had reached it. A fifth simply said “$250/20%” (of what and when were not specified). Which option is best? You might as well throw a dart.

My mini-study meshes with the conclusions of researchers from Carnegie Mellon University who explored in a December JAMA Viewpoint piece the complexity of choosing health insurance plans. They cited their own work, which found only 14 percent of 202 insured adults could answer four simple multiple-choice questions about the definition of a policy’s cost-sharing features, and most couldn’t accurately estimate the cost of their medical services. In another of their studies, they examined the decisions of some 24,000 employees at a Fortune 50 health services firm. Over a six-year period, the employees were given a selection of 3 plans with different cost-sharing options the first year, 48 plans the second and third years, 60 plans the fourth year, then 24, and finally 9. Researchers concluded that nearly two-thirds of employees paid too much for their coverage given their pattern of healthcare spending. “The main barrier to financially efficient choice was not the number of options confronting employees, nor the transparency of their presentation, but rather the lack of basic understanding of health insurance.”

Professor George Lowenstein, one of the JAMA authors, told me, “I don’t think the company realized employees were making bad choices. The choices employees were given made no sense to anybody.” Deductibles and coinsurance are particularly troublesome, he explained. Policies may have in-network and out-of-network deductibles that are different for each family member. They may apply to some services but not others. There are separate deductibles for drugs. Mindboggling! Coinsurance, a percentage of a bill, is just as bad, Lowenstein argues. No one knows what it is. It requires shoppers to figure a percentage of an unknown price — an impossibility. Even if you know the price of a service, you don’t know how much the insurer pays and what the coinsurance applies to. You know that only after you get a statement from your insurer after a doctor or hospital bills the insurer.

Why does this plethora of choices persist? Lowenstein says there’s only a limited amount of research showing people don’t understand health insurance. It’s also pluralistic ignorance, meaning that although supporters of this overwhelming number of choices don’t understand them, they think others do. Then there are economic interests, such as the insurers and drug companies that benefit from the complexities and are eager to perpetuate the myths of consumer choice.

The prevailing philosophy in most exchanges is to let anyone and everyone sell whatever they want to make a buck on consumer confusion. Why does this plethora of choices persist? Lowenstein says there’s only a limited amount of research showing people don’t understand health insurance. It’s also pluralistic ignorance, meaning that although supporters of this overwhelming number of choices don’t understand them, they think others do. Then there are economic interests, such as the insurers and drug companies that benefit from the complexities and are eager to perpetuate the myths of consumer choice. In a recent piece aired on Minnesota Public Radio, Clare Krusing, a spokesperson for AHIP, the insurers’ trade association, insisted health plans are trying harder than ever to help consumers understand their policies. “Whether it’s on mobile apps, whether it’s on email reminders, whether it’s easy-to-understand videos — health plans are doing all of that,” Krusing told Minnesotans. But do AHIP’s apps and emails do much if anything to erase the existing confusion?

We do have a model for cleaning up this shopping nonsense if we’re willing to challenge the conventional wisdom that consumers need 70 plans to choose from and that unregulated competition is good for decision-making. In 1991 Congress cleaned up the Medigap insurance market, which resembled the Obamacare exchange markets today. Zillions of policies were available; seniors were drowning in choice. They understood neither insurance nor Medicare and could not determine what they needed. Congress ended the confusion by calling for 10 standardized plans with different benefit packages. Carriers could compete on price and quality of service, but benefits for each package were the same among all carriers. Although new plans have been added and some removed, those standardized plans are helpful to seniors today and to the counselors who advise them. All they have to do is look at one simple chart that makes comparisons among packages, and then compare prices.

The standardized plans remain, in my view, one of the most useful consumer shopping tools around. Their passage, however, marked the high water mark for consumer protection, and as Bonnie Burns, a training and policy specialist with California Health Advocates told me, there’s been no support to apply standardization to Medicare Advantage plans, an equally confusing market with too many choices. “Nor is there any sentiment I can discern to apply it to any other insurance product.” Instead, she says, “regulators under pressure from industry representatives “provide disclosures which are often densely worded buyer beware notices buried in the text of a document or in a separate piece of paper that gets lost in the paperwork associated with buying any insurance.” Consider the Summary of Benefits & Coverage statement that provides decent comparative information about key provisions of Obamacare policies sold on the exchanges. Sellers must provide it if shoppers ask for it. Finding it can be a maddening exercise. When I’ve helped people shop on the New York exchange, disclosures were either nonexistent, hard to find, or hard to use for comparisons when I finally found them.

I rang up Mila Kofman, executive director of the DC Health Benefit Exchange Authority in Washington to discuss all this. Kofman was once Maine’s insurance commissioner and co-chaired the committee that designed the document Summary of Benefits & Coverage. She told me the DC exchange had resorted to standardizing some of the benefits. All insurers selling on the exchange must offer the same number of visits for occupational and physical therapy, she explained. Before benefits were all over the map and confusing. The exchange developed a standardized plan for each metal tier level, and that must be available from each carrier in each metal tier. So far, 30 to 40 percent of policyholders have enrolled in the standardized plan. I asked Kofman why the Medigap model was not up for discussion. It’s more complicated to design standardized products in a private market, she said, adding, “In a couple of years it would not surprise me if most of our customers were in the standardized plans. We will eventually have the Medigap model.”

Veteran health care journalist Trudy Lieberman is Contributing Editor of the Center for Health Journalism Digital and a regular contributor to the Remaking Health Care blog.

[Photo by Neon Tommy via Flickr.]