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Poor Consumer Decision-Making in Health Insurance Marketplace

By Vera Gruessner

- The health insurance exchange set up by more recent healthcare reforms including the Affordable Care Act was established in order to give consumers more choice in their medical coverage options. This was essentially expected to provide more competition for insurers around the country. However, there is evidence bringing to light the fact that many consumers are still uninformed and ill-equipped to make the best choices for themselves within the health insurance marketplace.

Health Insurance Exchange

Both the Medicare Modernization Act and the 2010 Affordable Care Act have set up key provisions to allow more competition throughout the health insurance marketplace by allowing more medical coverage decision-making on the part of the consumer. However, neither set up a system to educate and inform the everyday consumer on how to choose the best plan for them and lead to cost savings.

A report released by The Hamilton Project called Getting the Most from Marketplaces: Smart Policies on Health Insurance Choice explains that consumers who make poor choices in their health coverage can experience financial losses for themselves as well as state governments which subsidize certain programs.

The paper describes a multitude of studies illustrating consumers making poor decisions when choosing healthcare coverage. For example, many do not consider deductibles, out-of-pocket maximums, or other financial implications while others lack awareness of provider network benefits.

These studies show that despite the opportunities afforded by a large amount of healthcare coverage options, consumers will need to receive more education on the best options for their needs.

The report delves into positioning two solutions toward these ineffective consumer choices made within the health insurance marketplace. The two policies set forth could potentially reduce the financial losses and educate consumers on healthcare coverage.

The first policy set forth proposes that regulators create and utilize targeted consumer search tools that make recommendations for each individual based on specific medical-related details such as the age of the purchaser and lifestyle choices.

Creating these tools for the health insurance marketplace will allow policy users to come to the right decisions with their health coverage options all the while ensuring that the health plans suite their specific needs.

“We recommend a simple set of changes to the way in which insurance policies are purchased that can dramatically enhance consumer welfare, create incentives for innovation in the health insurance market, and lower government costs associated with providing subsidized coverage,” the report stated.

“First, we recommend that the Centers for Medicare & Medicaid Services (CMS) and state health exchange operators, which we refer to as the regulator, adopt and promote a narrower and more-targeted consumer search tool than is currently used to compare health insurance plans offered through Medicare or the health insurance exchanges. Such a tool would be forward-looking and personalized. We propose a number of design features of such a tool that would enable consumers to easily compare products in the market on the key dimensions that are important to them.”

A second potential solution set forth in The Hamilton Project’s paper involves establishing default policies that a regulator can enroll a consumer in if the regulator has significant concern the purchaser is enrolled in a poor coverage plan. Such a suggestion, however, could cause serious criticism from patient advocacy groups, as it seems to take away the autonomy of the consumer.

“Second, we propose a set of more proactive—or smart default—policies designed to improve the allocation of insurance plans when the regulator has substantial confidence that a consumer is enrolled in a poor plan match,” the paper explained. “Under our proposal, when the regulator has enough information to do so, it can default or opt consumers enrolled in existing plans into different existing plans during open enrollment, when it is clear that such a switch presents a clear and substantial increase in value.”


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