Many do not understand their insurance

Consumers’ misunderstanding of health insurance

By George Loewenstein et al
Journal of Health Economics, September 2013


We report results from two surveys of representative samples of Americans with private health insurance. The first examines how well Americans understand, and believe they understand, traditional health insurance coverage. The second examines whether those insured under a simplified all-copay insurance plan will be more likely to engage in cost-reducing behaviors relative to those insured under a traditional plan with deductibles and coinsurance, and measures consumer preferences between the two plans. The surveys provide strong evidence that consumers do not understand traditional plans and would better understand a simplified plan, but weaker evidence that a simplified plan would have strong appeal to consumers or change their healthcare choices.

Do you understand health insurance? Most people don’t.

By Sarah Kliff
The Washington Post, August 8, 2013

Most people who George Loewenstein, the health-care economist, studied could get one or so questions right – and thought they had pretty decent comprehension of how health coverage works. But only 14 percent could identify what each of the four terms mean.

Actual and self-perceived comprehension of insurance concept
(Percent who think they understand concept, followed by percent who correctly answered question testing understanding of concept)

97% / 78% - Deductible
100% / 72% - Copay
57% / 34% - Coinsurance
93% / 55% - Maximum out-of-pocket

“It’s difficult for people to understand it because it’s inherently complicated,” Loewenstein says. “Even if you understand each concept individually, it’s still difficult to figure out the cost.”

Still, Loewenstein is skeptical. His worry isn’t so much about people having access to information, but rather that insurance is too complex to understand in the first place.

In his ideal world, health insurers would only charge co-payments and eliminate deductibles, co-insurance and every other form of cost sharing. While this could cause some sticker shock – co-pays would presumably increase if they’re the only way of paying for care – it would significantly simplify the system. Health costs would suddenly become predictable.


By Don McCanne, M.D.

This survey of Americans who already have private insurance shows that they believe that they understand their insurance coverage, yet only 14 percent of them actually did understand all four of the basic insurance payment concepts. When individuals or their employers select insurance, what they really look at is the premium.

Of great concern is that those who remain relatively healthy and simply pay their premium are largely unaware that they have been part of the trend to greatly expand the prevalence of underinsurance products that place excessive financial burdens on those who actually need health care. They are underinsured and don't know it.

For middle-income workers, perhaps the most important of the four concepts is maximum out-of-pocket costs. Yet only about half of them understand that the correct choice of the definitions offered was, "After meeting the out-of-pocket maximum, all medical expenses are covered 100%." Though the other choices that the authors offered were clearly wrong, this one can be questioned as well. Medical expenses for services not provided as a plan benefit or for services obtained out-of-network are not covered 100%, and usually are not covered at all.

It is unfortunate that the insured often do not understand the extent of their potential financial exposure. Lead author George Loewenstein suggests that the problem is not so much the extent of their exposure but rather that the system needs to be simplified so people would understand what their exposure is. He suggests eliminating deductibles and coinsurance and replacing them exclusively with transparent copays, even if at exorbitantly high dollar amounts - at least they would know how much they may have to pay. Yet there is only "weaker evidence that a simplified plan would have strong appeal to consumers or change their healthcare choices."

We continue to see the policy community struggle with this concept that patients need to be made better shoppers by making their out-of-pocket spending more transparent. Other nations spend far less on health care and often with first dollar coverage. There is no need to create financial barriers to care. We can have far more efficient and equitable health care financing by adopting single payer policies.