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Uninformed Decision Making: How Prepared are Americans to Navigate the ACA?

In an effort to reduce the uninsured population in the U.S., the Patient Protection and Affordable Care Act (ACA) introduced health insurance exchanges in October 2013. Since then, people without health insurance can go into these exchanges at open enrollment periods and directly purchase coverage, choosing from a menu of dozens (and sometimes hundreds) different plans. In the first open enrollment period (October 1st 2013 to March 31st 2014), an estimated 8 million people selected a health insurance plan through Federally and State-based exchanges.1 However, the success of these exchanges, and of the ACA itself, depends on how informed Americans are about the rules governing the reform and health insurance contracts. How widespread is information about the exchanges and the available subsidies for purchasing health insurance? Is knowledge about health insurance high enough to allow for reasonable choices across different available plans? In other words, are people prepared for the changes in the health insurance market brought by the ACA?

Why is being able to make reasonable health insurance choices so important? After all, people have always chosen among health plans and there is no reason to believe that knowledge on this matter is any lower now than it was before. What is different now is the context. The ACA shifts responsibility for choosing among insurance options towards individuals. People with employer sponsored insurance typically only need to choose among few different plans pre-screened by their employers. In contrast, individuals looking to purchase from the exchanges will have the hard job of comparing many different insurance options in order to find the most appropriate product for their needs. And research has shown that when choices get complicated, people tend to avoid making them, which in this case means choosing to remain uninsured. Even though health insurance coverage has increased since the first enrollment period (7.26 million people gained coverage according to Gallup),2 it is estimated that 15% of adults remain uninsured, possibly due, at least in part, to their inability to make complex decisions without the appropriate information. In this context, lack of knowledge has very serious implications.

The ultimate success of the ACA depends on people being good health insurance shoppers. The exchanges are a market where health insurance companies are supposed to compete for customers, driving down prices and increasing the quality of coverage. This, in turn, only happens when individuals encourage competition among insurance companies by making informed choices about available plans. Moreover, lack of knowledge might lead to over- or under-insurance (or to no insurance at all) and to overly costly insurance policies, all with potentially important financial and health consequences. For example, gaining health insurance has been shown to reduce mortality,3 personal bankruptcies, debt,4and to improve credit scores.5 Therefore, lack of preparedness leading to uninsurance or inadequate insurance have potentially negative consequences both to the individual and the overall system.

In a new paper published at the Proceedings of the National Academy of Science earlier this year, my coauthors and I investigate how well equipped individuals are to make adequate health insurance choices in light of the fast-changing environment of the ACA. We collected and analyzed data on knowledge about health reform, health insurance literacy and expected changes in healthcare using a nationally representative sample of the U.S. population. We investigated whether people understood key health insurance concepts such as deductibles, premiums, copays, and differences across HMOs and PPOs. Without knowledge of such basic concepts, there is little hope that one will choose adequately among the various plans offered. We focused on subpopulations most likely to be affected by the new law: the poor and the uninsured.

Our work suggests that lack of preparedness is indeed a problem. We find low levels of health reform knowledge and health insurance literacy in the 5 weeks before open enrollment in the exchanges started (late August to end of September 2013). During this period, half of the respondents in our survey were not aware that the exchanges existed and 1 in 5 had not even heard of healthcare reform. These numbers were even higher among the poor and the uninsured, populations targeted by the reform. For example, approximately 70% of the uninsured did not know that the exchanges offered subsidies for purchasing health insurance.

Health insurance literacy was also found to be low: 42% could not correctly pick the right description of a deductible when shown 4 different alternatives and 62% did not know that HMO plans place greater provider restrictions than PPO plans. Again, among the uninsured knowledge was even lower; the fractions were 58% and 81% respectively. While the level of information on the reform probably increased since we collected our data given the extensive media coverage during the open enrollment period, it is less likely that the same is true for health insurance literacy.

Women were less informed than men about the rules governing the ACA but they had higher levels of health insurance literacy, maybe because they experience the healthcare system earlier in life due to childbearing and childrearing. Hispanics and uninsured respondents believed they knew more about health insurance than our objective knowledge measures revealed they actually did.

Interestingly, people in the least informed groups were also the most optimistic about changes health care reform could bring in terms of quality of care, waiting times and out-of-pocket spending. There was no relation between political leanings and health insurance literacy but respondents in blue states were the most optimistic about the reform.

In face of the low levels of knowledge documented, what can be done to guarantee that the exchanges work as intended? Plan standardization as well as providing simple and personalized plan information can lead to better plan choice. Adding online tools to support better decision-making, such as Medicare Part D’s “plan finder,” is clearly valuable. Moreover, the exchanges could be designed in order to nudge consumers toward good choices. They could, for example, present in the first screen the least costly silver, gold and platinum coverage plans, leaving the presentation of other plans in these coverage categories to subsequent screens. This would focus insurers’ attention on premium competition for given coverage requirements and would likely be procompetitive. In the context of the exchanges, where complex options combined with lack of knowledge can lead to confusion and inappropriate choice, such nudging would likely be beneficial.

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