Most Americans struggle to figure out which health insurance plan will save them money.
A study of almost 24,000 employees at a major Fortune 100 company found that 61% of them chose the wrong plan for their needs. The researchers at Carnegie Mellon University who conducted the study estimated that the average employee could have saved $372 per year by choosing a different plan.
“The majority of employees chose plans that were more expensive, regardless of how much health care that they actually consumed the following year, and on average, the cost of these choices was about 2% of salary,” Carnegie Mellon associate professor of economics Saurabh Bhargava, who authored the study, told CNBC.
This is costing Americans. In 2018, over 8% of Americans’ total household spending went toward health-care costs. This represents about a 37% increase since 2004, up from 5.9% of total household spending.
Forty-six percent of Americans say it’s difficult for them to pay the out-of-pocket costs for medical care not covered by their insurance, according to an October 2021 poll from the Kaiser Family Foundation.
“It seems like people aren’t able to maximize their welfare because they’re having trouble understanding the decision environment,” said Anya Samek, associate professor of economics at the Rady School of Management at the University of California, San Diego.
One major issue in choosing a health-care plan is people don’t understand the lingo insurance companies use to discuss each plan. Only about 1 in 3 people are able to correctly identify three common health insurance terms: premiums, copays and deductibles, according to Policygenius’ 2020 Health Insurance Literacy Survey.
“This basic lack of literacy, I think, contributes to a number of problems that people have exhibited when they do choose from a plan,” Bhargava said.