Column: Why it may require an MBA to pick the right health plan

CHICAGO Thu Oct 17, 2013 2:57pm EDT

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CHICAGO (Reuters) - Do you need an MBA degree to figure out the new health insurance exchanges?

Just getting online to shop has been tough enough during these early days of the insurance marketplaces launched under the Affordable Care Act, with reports of website malfunctions piling up. But a new study suggests even after they get into the ACA exchanges, consumers will have difficulty picking the policies that will be most cost effective.

Like our self-directed retirement saving system, the new healthcare system is one that requires consumers with varying degrees of expertise and knowledge to make important decisions for themselves.

Researchers from several universities asked a national cross-section of Americans to choose exchange policies that would be cost-efficient for them. The vast majority - 80 percent - failed to choose the best plan, resulting in average annual overspending of $611.

"Most people had trouble combining the policy premium, co-pay and deductible to understand their total likely cost," said Eric Johnson, director of the Center for the Decision Sciences at Columbia Business School and co-author of the study.

The researchers also asked students in the master's of business administration program at Columbia University to shop. They were able to pick the best plan for themselves 73 percent of the time - and 40 percent of them did it by firing up spreadsheets to do some number crunching.

Some people will read the results as yet another indictment of the ACA. But the findings echo what is already going on in the health insurance reform that preceded the ACA - the Medicare Part D program for prescription drugs.

Like the ACA, Part D revolves around an online marketplace offering dozens of choices. A study published last year found that seniors who participate are wasting hundreds of dollars by over-insuring themselves: Just 5 percent picked the most cost-effective plan; more than 30 percent overspent by $300 to $500 and nearly 20 percent over-spent by $500 to $1,000, according to researchers at the University of Pittsburgh.

Political ideologies and industry clout dictate that we go with these market-driven health reform solutions, rather than a simpler, single-payer approach to delivering health insurance.

The market-driven solutions aim to foster competition and innovation, and there is good reason to think that is happening on both the Part D and ACA marketplaces. But health insurance is a complex product, and marketplace choice does leave consumers at greater risk of making sub-optimal choices.

It's really not much different from what we've been seeing for years with self-directed 401(k) retirement saving - people don't save enough, don't make good investment allocation decisions and fail to pick the lowest-cost plan options. In fact, Johnson thinks we will need to apply some of the same remedies to the health insurance market that are starting to show results in retirement plans.

Self-directed "401(k)s work well for sophisticated investors, but the big challenge has been giving safe options to people who aren't sophisticated investors," he says. "We're getting that now by having automatic enrollment and placing people into life cycle funds. We're simplifying the choices for them."

Johnson's research predicts that ACA exchange shoppers will do better with some guidance - either with one-on-one help that is available from health care navigators working in every state, or from online tools that could help people easily calculate and understand expected total annual costs.

The ACA exchanges offer four tiers of coverage named after metals, and the key variable is a tradeoff between premiums, co-pays and deductibles. Shoppers can pick between Bronze (lowest premiums), Silver, Gold and Platinum (highest premiums). Plans with the higher premiums will have lower out-of-pocket costs.

The ACA requires that every insurance plan on the exchange provide a summary of benefits and coverage that can help consumers understand coverage. Shoppers will find links to the summaries alongside the policy listings; the summaries are boiled down to six pages of key questions and answers and a glossary of key terms - a fairly remarkable achievement considering the complexity of health insurance.

It's important to look carefully at the network of providers in any plan you consider buying, advises Cheryl Fish-Parcham, deputy director of health policy at Families USA, a consumer advocacy group. "If you pick a plan and then go out of network, you'll have higher co-pays and deductible, so you want to make sure the providers you regularly use are in your plan's network."

But at the end of the day, plan selection involves a risk tolerance question. "Think about what you could afford if you became sick," says Fish-Parcham. "If you're a person who would not be able to pay for care until you met a deductible, then don't enroll in a high deductible plan - spend the money on premiums instead."

For more from Mark Miller, see link.reuters.com/qyk97s

(The author is a Reuters columnist. The opinions expressed are his own.)

(Follow us @ReutersMoney or here

Editing by Linda Stern and Dan Grebler)

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