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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.

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

Comments

  1. Anne Kinzel says

    David: No one should graduate from high school without understanding these terms. Thanks for moving the conversation. I have a data question for you. What is the range of deductibles that you saw in your study as well as the median deductible in Iowa?

    • David Lind says

      Thank you, Anne. The Low deductible for single coverage was $0 (yes, there are still a few employers having no deductibles), while the highest single deductible was $15,000, with $8,000 being the second highest. The median is $1,500, while the mode was $1,000.

  2. Sue Martin says

    Love your articles David. I started in health insurance in 1984 as well, and like you, I had no idea what deductible, coinsurance, etc. were!! I remember the beginning of copays in Iowa, we thought they would never catch on!

  3. Great article. All the more important that brokers and employers understand how EAP benefit can help manage costs while keeping employees healthy, productive, and engaged.

    • David Lind says

      Thank you, Ketsie! Perhaps this can be a new strategy for your organization when assisting other organizations and their employees?

  4. Carol Wheeler says

    I remember when I started in the insurance industry too. I sat in a meeting with you and the guy from Principal and you were talking about a census. I was clueless. Thank goodness you taught me well! Of course that was in 1993 – I’m not NEARLY as old as you!

    • David Lind says

      Thanks, Carol. Buried within your comment is a compliment, I’m sure! :>) It was great working with you back then!

  5. Anne Kinzel says

    Thanks, that helps me understand the situation just a bit better. Do you ever collect data on political affiliation as part of your survey work?

    • David Lind says

      I have not asked this question in our annual survey. Please keep in mind that survey participants cover a broad gamut of job positions and responsibilities, so I’m not sure how their political affiliation would be relevant with basic benefits questions…unless I have specific policy questions that are framed by political affiliations.

  6. Anne Kinzel says

    Thanks! I sort of anticipated your response given the type of surveying you do. With the rise in anger in the country I was curious about the correlation between party/anger/increased copays, etc.

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