Only 4% of Americans understand important health insurance concepts

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Only 4% of Americans understand important health insurance concepts

There are lots of topics we might go out of our way to try and impress our friends with a deep knowledge of, like politics, sports or pop culture, but health insurance isn’t usually one of them. (Unless you’re an avid reader of our blog, in which case you never cease to impress your social circle with an abundance of health insurance facts and info.)

The truth is, what many people think they know about even the simplest of health insurance concepts is incorrect.

In fact, our recent survey of 2,000 people found that only 4 percent -- just 80 people -- overestimate their understanding of key terminologies like deductibles, copays, coinsurance and out-of-pocket maximums.

And it’s not just in one part of the country where people are less smarter than most on health insurance. When we partnered with Radius Global Research in September and October, we polled residents of 10 major metropolitan areas -- New York, Los Angeles, Chicago, Philadelphia, Dallas, Washington, D.C., Austin, Atlanta and Houston -- proving that overconfidence in health insurance is common across a wide demographic.

The problem? When you’re misinformed about something as important as health insurance, your finances -- and your health -- aren’t getting what they deserve.

Study finds people know less than they think about health insurance

Some of our key findings:

  • A minor percentage of respondents were truly familiar with basic health insurance terms
  • Confidence in understanding is slightly lower among people who are self-insured versus those insured by an employer
  • Male Baby Boomers and the more educated/affluent tend to have higher confidence in their understanding of health insurance
  • Consumers who use their health insurance more often tend to believe they understand their policies and coverage better
  • Millennials showed the widest gap in confidence versus comprehension of health insurance terms

Consumers overconfident in their knowledge of health insurance terms

Bill Gates once said, "If you can’t explain something simply, you don’t really understand it." Chances are, the people we polled might struggle to clearly define many simple health insurance terms if asked.

Coinsurance (the percentage of costs paid by a patient after paying their deductible) was the term least understood by survey respondents. Although 47 percent said they definitely understood the term, only 27 percent chose the correct definition.

Likewise, while consumers expressed confidence in more common terms, like deductible (74 percent of respondents) and co-pay (83 percent), they still lacked a true understanding of both terms. For example, only 55 percent of respondents chose the correct definition of co-pay, indicating a 28-percent gap in their confidence level and actual understanding of the term.

Does employer-backed insurance make you more knowledgeable?

Maybe it’s because your HR department did a really good job of briefing you on your company’s health insurance policy, but the study we conducted found that respondents’ confidence in their understanding of health insurance was relatively consistent among people who have an employer-backed plan.

People with self-paid plans were also pretty confident in their health insurance know-how, but they were less knowledgeable than people with employer-sponsored plans. Forty-five percent with a self-paid plan, for example, were able to correctly define "deductible," versus 53 percent of respondents with an employer-paid policy.

Although "coinsurance" was the least understood term in the entire survey, more respondents without an employer-paid plan accurately defined it over those with one (24 percent vs. 22 percent). Overall, only 4 percent of survey takers were able to define each term correctly, regardless of confidence level.

Demographics, education and affluence play a role

We always like to think we’re smarter than those darn whippersnappers in the generation that comes after us. When it comes to health insurance, it’s Baby Boomer men who seem to have a higher level of confidence over the basics (even when they’re incorrect about them).

Highly educated respondents and high-earning people, according to the survey, also carry a false sense of security over their true knowledge of health insurance.

However, those markers of confidence don’t indicate a better understanding of insurance topics.

According to the study, 88 percent of Baby Boomer men said they were confident in their understanding of what co-pay means, but only 58 percent were able to correctly define it. Likewise, while a high 85 percent of people who earn more than $150,000 per year believed they knew what co-pay is, only 58 percent got their definition correct.

As for the correlation between confidence and education, 2 percent of high-earning respondents were able to correctly define all four terms, compared to a slightly higher 5 percent of college educated participants. For each term, college-educated respondents expressed both higher confidence and knowledge compared to peers without a college education.

More policy usage creates false sense of confidence

It’s easy to see the psychology behind it: the more you make use of your policy, the more you think you know about it because it seems more familiar.

Results of the survey noted that people who make more use of their health insurance policies actually do believe they know more about each of the four key terminologies, but their understanding is similar to those who use their policies less often, the survey revealed.

Specifically, respondents who used their health insurance plan twice within the last year were more confident in their understanding of deductibles, co-pays, coinsurance and out-of-pocket maximums, compared to those who used their plans just once in the last 12 months.

In both cases, neither group understood the concepts better than they believed -- but those who used their insurance less scored more realistically overall. Whereas there was an 11-percent gap between both groups regarding confidence levels, there was only a 1 percent difference in real understanding of the terms.

Millennials display broad gap in confidence, understanding

Is it because 20-somethings get sick less often? Or is it just a heightened sense of know-it-all-ness that comes with being young? Across each demographic segment surveyed in the study, Millennial men and women between the ages of 25 and 35 showed the widest gap in confidence and comprehension -- meaning their confidence levels were highest with comprehension/understanding levels the lowest.

The group’s average score gap of -29 percent was the largest, which shortened for each older demographic: -26 percent for ages 35 to 44, and -24 percent for groups aged 45 to 54 and 55 to 64.

Unlike an unfamiliarity with coinsurance, Millennials showed the greatest lack of understanding with knowing about co-pays, showing a -33 percent gap between assuming what co-pay means versus truly understanding the concept.

Important takeaways

The biggest takeaway from this portion of our survey is that everyone, from all age groups, demographics, genders, education levels and income brackets should develop more health insurance literacy. Confidence doesn’t always equal comprehension or true understanding.

And it can cost you money when a little information can go a long way saving you some bucks. For instance, if you don’t know what your deductible is, you won’t be able to confirm the exact amount you need to meet out of pocket before your insurance takes over. And it could make all the difference in choosing a policy with a high deductible (paid only when you use your plan) versus one with a high monthly premium (the amount you pay each month, regardless if you take out a claim).

As for co-pay and coinsurance? Your co-pay is the flat fee you pay at the end of your doctor’s visit, depending on the procedure or service rendered; your insurance company pays the rest. Coinsurance, on the other hand, is a percentage you pay after you’ve met your deductible. And out-of-pocket maximums, like it suggests, is the maximum amount you need to pay out of pocket before your insurance starts kicking in 100 percent.

Knowing these details can help reduce your out-of-pocket costs in the end without relying too much on your own savings to finance your healthcare.

While it can be a confusing topic and a complex landscape to navigate, becoming more knowledgeable and aware about health insurance can help you choose the right policy, receive the best coverage, save money -- and most of all, keep you in the best of health.

Image: Chris Potter