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Kalich: Many U.S. adults are illiterate about insurance
by By Tim Kalich Greenwood Commonwealth
Dec 31, 2013 | 169 views | 0 0 comments | 67 67 recommendations | email to a friend | print
The Affordable Care Act and its health insurance mandate are showing that many U.S. adults are clueless about the basic economics of medical coverage.

According to a recent story from The Associated Press, experts in the health insurance field are becoming increasingly concerned that too many of the newly insured are opting for the lowest up-front price without understanding the potential consequences should they have a claim.

Insurance of any kind is a balance of risks. The more risks you are willing to accept yourself, the lower the costs of coverage; the fewer risks you want to take, the higher the premium.

In the case of health insurance purchased on the new online exchanges created by Obamacare, the cheapest "bronze" plans have an average annual deductible - the out-of-pocket expense the insured pays before the benefits kick in - of more than $4,300. In essence, it's "catastrophic coverage." It will probably help you avoid bankruptcy in case you suffer a severe ailment that requires hospitalization, but you will be on the hook for most routine health problems.

At the other end of the spectrum, the average deductible is only $167 for the top-of-the-line "platinum" plan. But it will cost you about 50 percent more in monthly premiums. How much more depends on your age and where you live. In one example cited in the AP story, a 30-year-old in Chicago would pay about $1,400 more a year for platinum coverage than bronze coverage.

If you had to go into the hospital, that $1,400 in extra premiums would be money well spent. But if you were a person who required very little medical treatment, it would seem like a wasted expense.

In addition, many of the newly insured are of modest means, so even if they wanted to go with low deductibles, they might have a hard time working the higher premiums into their budgets.

Settling on an insurance plan is complicated. You not only have to balance your tolerance for risk with your income, but you also have to project how much medical care you might need.

If you are new to this, though, there is no reason to feel dumb. Most Americans, including those who already have insurance, are fairly illiterate on the topic. One study cited in the AP report says only 14 percent of the already insured understands how deductibles work.

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