Health Plan Confusion and Bad Decisions

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A popular idea for reducing healthcare costs is to arm consumers with detailed information about the prices of drugs and medical procedures so they can make smarter decisions.

But the academic community is reaching the opposite conclusion: people don’t understand the information they already have and are making bad decisions based on these misconceptions. The latest example is a survey of Wisconsin state workers who sometimes defer care because they are under the mistaken impression that they can’t afford it.

“Workers do not understand how health plans work, the role of deductibles, co-insurance and co-pays … and what goes into out-of-pocket costs,” concludes a report by the University of Wisconsin public affairs school, which surveyed 2,200 government workers.

Before getting into the specific findings, it’s important to note that Wisconsin’s employees are in an enviable position. They choose from just four health insurance options approved and overseen by the state. The broader implications of the report are more distressing, if one considers that millions of Americans buying insurance through the Affordable Care Act exchanges, Medicare Advantage plans, or Medicare Part D drug plans must sort through oodles of plan options with different copayments, deductibles, physician and hospital networks, or drug coverages.

The confusing patchwork of Part D plans hurts retirees’ pocketbooks, according to research in Health Affairs, which found that only one out of 20 retirees selects the cheapest drug plan to meet their medication needs. A different study found that health insurance buyers purchase overly expensive plans when they have to choose from a complex menu of options.

The Wisconsin report said state workers there are also overwhelmed:

  • Nearly half of the workers who are strapped for cash said they have skipped a test or treatment and nearly a third did not fill a prescription, because they could not afford it. But these decisions are often based on inflated estimates of their out-of-pocket copayments and annual deductibles. For example, more than two out of three workers believe a physical exam costs $100. In fact, they are fully covered under federal law.
  • High-deductible health plans are becoming much more pervasive, yet workers don’t understand how to use them. High-deductible plans require patients to pay all of their medical costs until they reach their deductibles, and Wisconsin workers overestimate “by a large margin” how much a physical or an MRI would cost them out-of-pocket.
  • They are not clear about the different options for saving money, tax free, to defray their copayments and deductibles. For example, they confuse Flexible Spending Accounts (FSAs) offered to all state workers with Health Savings Accounts (HSAs), which are limited to high-deductible health plans and include an employer contribution.
  • Most of the people surveyed admit they don’t understand their health plans – but a minority had an interest in learning more.

The onus is on employers, health care professionals, insurance companies, and policymakers to make things easier. But health insurance is complicated, and it’s also on consumers to educate themselves about how their plans work.

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Chuck Miller

It’s very hard even for healthcare workers to know the cost of anything, since nearly every charge is negotiated between providers and insurers.

Edward Hoffer MD

Our current health care “non-system” works well for the executives who have taken control, CEOs of hospitals and insurance companies earn millions while doctors are suffering burn-out and patients pushed into bankruptcy. The employer-based health insurance system worked for much of the 20th century, but as costs have escalated, employers reacted by upping deductibles and co-pays to limit their costs. Not a huge issue for high paid employees, but many lower paid employees act as if they are uninsured, skipping medicines and avoiding preventive care. We need to redo, as it is not working for many Americans. Read my book and get engaged: Prescription for Bankruptcy.

Geoffrey Hewitt

The one item this article does not mention is the fact that MBA-graduated Ivy types design all of these programs, so in fact the customer does not understand the charges even if one is well educated. I should know I have 6 family members (not me) with PhD’s in sciences from all the Ivies and Cambridge too, myself only a Masters w/ honors.

Contrast that with Walmart or Target pricing when you enter the store or go on line. The insurers designed it this way for 40 years. With healthcare at 19% of GDP and $3.65 TRILLION bigger than the federal budget, it will bankrupt this country. It’s twice what any European country spends on healthcare with no better outcomes. The health care lobby owns Congress too.

Paul Rubinfeld

I am a HICAP, California’s implementation of State Health Insurance Assistance Programs (SHIP). I provide Medicare counseling services. I try to de-mystify the choices Medicare recipients must make — Original Medicare (+ RX coverage and Medigap vs. Medicare Advantage, etc.) It’s complicated. Perhaps this is a stretch, but would you expect a person to be able to assemble a working automobile by buying the parts in an auto parts store?


I just retired after spending 39 years as a Wisconsin State Employee. I find the facts of this report hard to believe. Yes, we have good health insurance. No it’s not hard to understand.


My husband retired in June. Although I am happy that his company offered a retiree health plan, that is a bridge to Medicare in 20 months for me. I was totally surprised that the retiree plan differed in substance, and not just cost, from the standard employee plan. Everything, including “wellness” and ER visits, has a copay of 20% and a deductible of $4,100. Is this a hole in the ACA that slipped by? No wellness coverage!


    Denise, please count your blessings. When I retire, I have the choice of COBRA and marketplace plans until Medicare. No retiree plan at my employer.


Beats me why most people aren’t screaming for universal coverage that takes the profit out of health care. Our fragmented for-profit system is beyond broken. What a mess. Yep, some people may love their current health plans (unions, high-paid execs, gov’t employees), but the system is a disaster for the rest of us.

Tom Wright

Couldn’t agree more. The level of complexity, and the resulting significant levels of confusion are a very real problem. And, unfortunately, there are no meaningful solutions on the horizon…


Before retirement, prescriptions through employer health coverage were filled by mail order, $40 for a 60-day supply for many drugs in their formulary.

After retirement, with far less money coming in and greater need for prescriptions, the price for a 60-day supply of the same medication is over $300. The Pharmacist says many people opt to do without, so much so that they don’t put labels on the RX bottle until after the customer is told the price and agrees to it — and this at a “discount” pharmacy.

And once you’re on Medicare, you can’t use coupons or special benefits from pharmaceutical companies, according to many sources.

Not to mention the medical tests and procedures your doctor requires to manage your condition, and Medicare refuses to pay.


It will be interesting to see the state of financial affairs in this country in another 25 years or so. Housing, taxpayer supported pensions, health care costs, college costs are some of the issues that will take our country to the brink of economic disaster.


Time will give us more insight on all of this.

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