Back Button
Menu Button

Understanding Health Insurance 101

Health benefit claim formI’ll always remember my first day on the job at Blue Cross and Blue Shield of Iowa (now Wellmark BC/BS) in 1984. A relatively newly-minted college graduate, I was asked a fundamental question about health insurance – “What is a deductible?”

I’m somewhat ashamed to share with you that I was clueless. Until my employment at an insurance company, why would I even care what a deductible was? That day in 1984, I quickly learned about deductibles and other cost-sharing tools commonly found in health plans.

According to a 2013 article in the Journal of Health Economics, almost nine out of 10 Americans (86 percent), could not define all of the following terms on a multiple choice questionnaire:

  • Deductible
  • Copayment
  • Coinsurance
  • Out-of-pocket maximum

This is both important, and frankly, troubling. Here’s why…

In 2006, approximately one in 10 American employees had a health insurance deductible of $1,000 or more for single coverage. Today, almost half do. During this same year in Iowa, the average single deductible for an employer-sponsored health plan was $776. According to our 2015 Iowa Employer Benefits Study©, this average mushroomed by 114 percent to $1,662. The increase is quite simple: as health costs continue northward, so, too, will the premiums that employers and employees pay. To keep the premiums ‘reasonable,’ employers continue to shift cost-sharing arrangements – deductibles, copayments, coinsurance & out-of-pocket maximums – to employees and their family members.

Making informed decisions about purchasing healthcare is paramount in the post-Affordable Care Act (ACA) era. Teaching employees (and their family members) the A,B,C’s of their health plans is critical when choosing high-value care at affordable prices. This so-called ‘healthcare consumerism’ is supposed to push the mainstream delivery system into a more efficient, patient-centric ‘system’ of care. The building blocks to get there require Americans to fully understand what they must pay for the care they seek – and understand the terms in which they are asked to pay (e.g. deductibles, etc).

One key premise of the ACA was to have more Americans covered by some form of health insurance, whether it be through employers, Medicare, Medicaid or through individual plans, subsidized through marketplaces, such as a state or federally-qualified exchange. By doing so, Americans would seek care prudently and not access care through more expensive hospital emergency rooms.

Yet, a new report from the U.S. Centers for Disease Control and Prevention (CDC) shows that the number of emergency room visits continue to increase, with one in five Americans taking at least one annual trip to the hospital ER for urgent care purposes. In 2015 alone, about 131 million Americans visited emergency rooms, with 29 percent having private insurance, 25 percent with Medicaid or Children’s Health Insurance Program policies, 18 percent had Medicare and 14 percent had no insurance.

Employers – Consider a Simple Health Terminology Pretest

Test QuizEmployers can do their part by educating their employees on terms and provisions offered through their health coverage policies. To begin, learn whether employees understand the four key payment concepts of health coverage (deductibles, copayments, coinsurance and out-of-pocket maximums). This can be done by simply surveying the workforce with a simple pretest.*

  1. Do you know what a Deductible is? (Yes or No)
  2. Which of the following best describes a Deductible?
    a. An amount deducted from your paycheck to pay for your insurance premium.
    b. The amount deducted (covered) out of your total yearly-medical expenses.
    c. The amount you pay before your insurance company pays benefits.
    d. The amount you pay before your health expenses are covered in full.
    e. I’m not sure.

Curious about additional questions to ask employees? I highly recommend reviewing the Journal of Health Economics article, “Consumers’ misunderstanding of health insurance.” By surveying your employees, perhaps you can follow-up with them via email or handouts and define each healthcare term, providing examples of how they are used within your particular health plan. Later, you may wish to perform a post test to determine improvement in comprehension of these particular terms. Something to consider…

Much like Orwell’s ‘1984,’ my education about deductibles came and went. How about you? It’s never too late to bring others up to speed on health insurance concepts.

To stay abreast of employee benefits and other tangential issues, we invite you to subscribe to this blog.

*Loewenstein, G., et al. Consumers’ misunderstanding of health insurance. Journal of Health Economics 32 (2013) 850-862.