A short (less humorous) version of an old joke goes: an engineer, a priest and an economist are stranded on a desert island with just a can of beans. They’ll starve if they can’t open the can. The engineer proposes a solution involving situating the can among rocks in such a way as to heat the can to the point of exploding. The priest suggests praying for divine intervention. The economist’s approach: “assume a can opener.”
Replace “economist” with “public policy expert” and you get a nice metaphor for why any massive reform is an arena where unrealistic expectations intermingles with unintended consequence. This dynamic doesn’t mean big problems don’t require big solutions, but it does imply that the assumptions and predictions of “experts” – especially those detached from what would generally be regarded as the “real world” – are unlikely to work out as well as hoped.
The Patient Protection and Affordable Care Act is no exception to this phenomena. The health care reform law is chock full of the favorite “concepts” proposed by academics over the past few decades. Exchanges. Standardized plans. Modified community ratings. On-and-on. Some of these ideas were the favorite of Democrats; some were originally proposed by Republicans. Most all of them are based on theories about how the real world should work, with the emphasis on “should.”
A case in point. One of the better provisions of the PPACA is aimed at creating a standardized approach to presenting the benefits included – or excluded – by a medical insurance policy. Standard terms and descriptions must be used by carriers beginning in 2012 so consumers can easily make apple-to-apple comparisons between policies. The PPACA lays out the requirements of these Summary of Coverage forms (e.g., they can be no more than four pages long). Developing the template and permissible language, however, is left up to the Department of Health and Human Services in consultation with the National Association of Insurance Commissioners.
Ask most policy experts and they’ll argue that standardizing these benefits will empower consumers to make informed decisions concerning the appropriate health care coverage that best fit their needs. Some will even be willing to state that this provision is another reason why brokers will be less necessary in the future. By making it simple to understand and compare policies, the expertise brokers provide will be less necessary.
The reality appears to be something else.
While finding that consumers considered the initial version to be appealing and well received, a study by Consumers Union showed the Summary of Benefits “could lead [consumers] to select a plan that was not in their best interest.” The reason is because of:
- Significant participant difficulty with cost-sharing concepts (allowed amount, coinsurance, benefit limits, deductibles, etc.)
- Significant participant difficulty with covered service definitions (understanding what was included in specific service categories, like preventive care)
In other words, while the information was presented clearly, consumers lacked the expertise to use this information effectively.
Consumers Union, which publishes Consumer Reports, used focus groups to explore the effectiveness of the draft version of the standardized summaries. One of the study’s observations is that “shopping for health insurance was an aversive task, fraught with anxiety for many respondents. They were afraid of making a costly mistake if they chose the wrong plan. Even respondents with good health insurance literacy skills lacked the confidence to choose a plan, reflecting a concern that it would expose them to potential financial liabilities.”
I made a similar point in yesterday’s post: “health insurance is complicated, expensive, rarely shopped for, very personal and extremely critical to one’s health and financial security. This is not a purchase to be made lightly. Consequently, consumers and small businesses want an expert to help them make the right choice.” But it’s nice to have this observation borne out in independent research.
Providing information in a user-friendly, clear and understandable way is very hard. And I believe standardizing the presentation of policy information is a worthy goal.
Where I part company with some policy experts, however, is when they assume that consumers are likely to be able to use this information effectively. Some may, but many will not.
Nor is this likely to change by simply improving the form. People shop for health insurance coverage maybe once a year or three times a decade. They’re not going to get good at it. In the torrent of information we all face, for most people spending the time necessary to become savvy about the ins-and-outs of health insurance just doesn’t rank very high.
That’s one of the reasons why the academics who create what they view as a transparent and agent-free health insurance market are doomed to disappointment. In an ideal, hypothetical world you can assume full understanding of clearly set forth information – heck, you can assume a can opener on a desert island. But once that theory comes in contact with reality, consumers want, need and deserve independent expertise from qualified professionals both before and after the sale.
Assumptions are fine, but reality is what counts.