Study: Consumers could make costly mistakes using health insurance exchanges

By Maryalene LaPonsie on October 10th, 2013

Too many choices and confusion about their medical needs could lead consumers to make costly mistakes when selecting health insurance coverage on new government exchanges.

That's according to a study published on the eve of the launch of the online health insurance marketplaces. Research from Columbia Business School suggests more than 80 percent of those shopping on government exchanges will select a more expensive plan than they need. Those mistakes could cost U.S. taxpayers an extra $9 million in subsidies to help pay for the plans.

Cost-efficient plans may be difficult to identify

According to Columbia researchers, consumers may end up paying, on average, an extra $611 because they are unable to clearly estimate their medical needs. Selecting the wrong plan also has the potential to impact the ability of exchanges to offer low cost health insurance, one of their main stated purposes.

"If consumers can't identify the most cost-efficient plan for their needs, the exchanges will fail to produce competitive pressures on healthcare providers and bring down costs across the board, one of the main advantages of relying upon choice and markets." said Professor Eric Johnson, co-author of the report and co-director of Columbia Business School's Center for Decision Sciences, in a written statement.

The study conducted six experiments using individuals with various levels of education. Even when provided a monetary incentive for selecting the most cost-efficient plan, 79 percent of participants still selected the wrong policy for their needs.

Helping consumers choose affordable health insurance

While the study offers some grim statistics, Columbia researchers say consumers and government administrators can take some simple steps to increase the likelihood of shoppers selecting the best plan.

For consumers, the report recommends anyone shopping on the exchanges estimate their medical needs before they begin to browse the available plans. As for government administrators, Columbia researchers suggest the following changes to the exchanges:

  • Add tutorials and educational components to help explain insurance terms
  • Include smart tools such as a calculator function
  • Make the most cost-efficient health insurance plans the default option
  • Reduce the number of plan choices

"Designers of the exchanges should take heart and know that they can significantly improve consumer performance by implementing some easy, straightforward tools such as just-in-time education, smart defaults, and cost calculators," said Johnson.

Consumers can begin shopping on health insurance exchanges now, but any medical insurance purchased before the end of the year won't be effective until Jan. 1, 2014. Open enrollment on the exchanges ends on March 31, 2014.

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