There are still many unanswered questions about exchange enrollment frequently mentioned. How many people will actually complete the process by paying? What percent were previously uninsured? What will the relatively health of this group mean for premiums next year? etc…
Most of these questions are about gauging the risk pool from the perspective of the insurers, but the question which will demonstrate if the entire structure of the law even makes sense hasn’t gotten enough attention. That question is: How many of these 7 million ended up selecting the correct plan for themselves?
By “correct” plan I mean the policy which should likely produce the best net financial outcome for them based on their health conditions, subsidies and probability of developing a major illness this year. I looked at the federally-run exchange options in my old neighborhood and found 36 different plans across several medical tiers. Each with very different premiums, cost-sharing formulas and networks. Choosing the wrong plan could easily end up costing someone thousands of dollars more than it should have.
So how many people, millions of whom only selected a plan at the absolute last minute possible, understood all the insurance terms, their individual risk profile and the network structures in their areas to make the best choice? We will probably not know for a long time, but survey data indicates the number could be depressingly low.
A 2013 poll for the American Institute of CPAs found 51 percent of Americans could not accurately identify at least one of three common health insurance terms: premium, deductible and copay. Similarly, a study published in the Journal of Health Economics found only 14 percent of respondents accurately understood deductible, copay, co-insurance and out-of-pocket maximum, and just 11 percent were able to compute the cost of a theoretical four-day hospital stay giving the information. There is widespread agreement that most Americans lack basic insurance literacy.
The entire structure of the law hinges on this question
This is a critical question because the entire justification of the law’s structure assumes most people would be able to make the best choice. The supposed point of exchanges with so many plan designs was to have smart shoppers drive down cost by making the correct choices. If most people can’t the exchanges might not just prove to be a waste of money but actually turn out to be counter productive. Insurers may be incentivized to work on ways to exploit this lack of understanding to get people to overpay driving up health care spending.
California, along with a few other blue states, may provide some data about how many people are making the correct choice by comparing them to the federally-run exchanges. A few states require some plan standardization unlike the federal government which gave insurers significant leeway.
If it turns out most people aren’t choosing their “correct” plan then allowing insurers to have so much design flexibility or even using exchanges at all instead of one standard government insurance plan becomes indefensible. Of course, how often is the political debate or media coverage of a policy issue defined by data and logic?
Image by Peter Morville under creative commons license