Understanding Insurance: Who Really Gets It?

Many people do not fully understand their insurance policies, and this lack of knowledge can have significant financial implications. A survey by KFF found that half of insured adults in the US report some difficulty in understanding at least one aspect of their health insurance, such as what their insurance covers, what they will owe out-of-pocket for care, and what their explanation of benefits statement means. Another survey by PolicyGenius revealed that only 4% of Americans could correctly define four basic insurance terms: deductible, co-pay, coinsurance, and out-of-pocket maximum. This lack of understanding can lead to unexpected costs and difficulties in selecting the right insurance plan.

The complexity of insurance policies and the challenges in comprehending them are not limited to health insurance. A survey by Insurify found that 96% of American drivers misunderstood at least one key aspect of their auto insurance policy. This indicates a widespread lack of understanding of insurance across different types of coverage.

The consequences of not fully understanding insurance policies can be significant. People may encounter unexpected costs, be unable to access needed care, or make uninformed economic choices about their medical treatment. Additionally, insurance problems can lead to delays in receiving care and even contribute to declines in health.

Simplifying insurance benefit structures and providing consumer education could help improve understanding and enable consumers to make more informed decisions about their coverage.

How many people understand insurance?

Understanding insurance is a complex task, and many people struggle to grasp the fundamental concepts and how they apply to their policies. This lack of understanding can lead to unexpected costs and even impact their ability to receive necessary medical care.

Health Insurance Understanding

A survey by KFF found that about half of insured adults in the United States report having difficulty understanding at least one aspect of their health insurance. This includes not knowing what their insurance covers (36%), uncertainty about out-of-pocket costs (30%), and struggling to comprehend their Explanation of Benefits (EOB) (30%). Around a quarter find it challenging to understand basic insurance terminology like "deductible" (25%) and figuring out which providers are in their network (23%).

The complexity of insurance plans plays a significant role in this lack of understanding. Plans with multiple parameters and reimbursement structures are more challenging to comprehend than simpler policies. Families with straightforward insurance that covers specific services are more likely to understand their coverage.

Additionally, people with greater health care needs, such as those with poorer health or mental health issues, are more likely to encounter problems with their insurance. This vulnerable group often faces challenges in accessing the care they need, with one-third of those with mental health concerns forgoing necessary treatment.

Auto Insurance Understanding

The situation is similar with auto insurance. A survey by Insurify revealed that 96% of American drivers misunderstand at least one key aspect of their auto insurance policy. This includes misconceptions about comprehensive coverage and bodily injury liability. The average driver scored only 56% on the survey, indicating a lack of understanding of how their auto insurance works.

Factors Affecting Understanding

Several factors contribute to the challenges in understanding insurance. Complex plan structures and multiple parameters make it difficult for consumers to grasp the full extent of their coverage. Simplifying insurance benefit structures and providing consumer education could help improve understanding and enable consumers to make more informed choices.

Time spent on selecting and signing up for a plan also plays a role. Many individuals find the topic of insurance unpleasant, intimidating, or stressful, leading to limited engagement during the decision-making process. This can result in overconfidence in their understanding and potential financial disadvantages when utilizing their insurance.

What are the consequences of not understanding insurance?

Not having health insurance can have serious consequences, including:

• Financial burden and increased debt: Uninsured individuals often pay more for medical coverage, leading to a strain on household finances and mounting debt due to unpaid bills. Medical bills are the number one reason people file for personal bankruptcy.
• Lack of access to quality care: Healthcare providers are not required to offer care to uninsured individuals, except in emergency rooms. Uninsured individuals are less likely to take advantage of preventative care and often delay seeking treatment until the last possible moment, which can have major health consequences.
• Poor health outcomes: Uninsured adults have less access to recommended care, receive poorer quality of care, and experience worse health outcomes than insured adults.

What are the key knowledge gaps in insurance?

Understanding insurance policies can be challenging, and knowledge gaps are prevalent among consumers. Here are some key areas where people may lack a full understanding:

Complexity of Insurance Policies

People often struggle to comprehend the complex structure of insurance policies, including reimbursement insurance and prepaid group practices. This is especially true when policies involve a combination of deductibles, coinsurance rates, and fee schedules. Simplifying insurance benefit structures can significantly improve consumer understanding.

Outpatient Services Coverage

Many individuals are unsure about their coverage for outpatient services, such as physician visits, prescription drugs, and dental care. This lack of knowledge is more common among those with policies that include deductibles, as they may believe that their insurer will not reimburse them for these expenses.

Understanding Specific Insurance Terms

Insurance policies often contain technical jargon, and consumers frequently encounter challenges understanding specific terms and conditions. Terms like "deductible," "premium," "policy limits," "exclusions," "co-payment," and "coinsurance" are often cited as confusing. This lack of understanding can impact their ability to make informed decisions about their coverage.

Data Analytics and Digital Technologies

With the insurance industry's increasing focus on data analytics and digital transformation, consumers need to enhance their data-related skills. Proficiency in data analytics, cybersecurity, and digital marketing will be crucial for various business functions within insurance companies.

Regulatory and Compliance Frameworks

Insurance is heavily regulated, and consumers often lack knowledge about insurance laws and compliance frameworks. This can impact their understanding of risk assessment, underwriting, and claims processes.

Insurance Selection and Claims

Consumers may not fully understand the factors to consider when selecting an insurance policy, such as premium cost, coverage options, financial stability of the insurer, and the claims process. Additionally, they may face challenges when navigating the claims process, including understanding denial reasons and resolving issues.

Role of Insurance Agents/Brokers

Insurance agents and brokers play a crucial role in educating consumers about insurance policies. However, there may be a skills gap among these professionals, requiring continuous training and upskilling to stay abreast of industry changes and evolving customer needs.

Addressing these knowledge gaps is essential for empowering consumers to make informed decisions about their insurance choices and ensuring they can fully utilize their coverage effectively.

How does insurance literacy vary by insurance type?

Insurance literacy varies by insurance type, with some types of insurance being more complex and difficult to understand than others. For example, health insurance literacy (HIL) has been found to be particularly low among consumers, with many people struggling to understand basic health insurance terms and concepts. This is a critical issue as health insurance is one of the most common forms of insurance, along with car, home, and life insurance.

Health insurance literacy is defined as a person's ability to seek, obtain, and understand health insurance plans and to use their insurance to access appropriate healthcare services. Studies have shown that more than half of US adults have inadequate HIL, with racial and ethnic minorities, young adults, women, and those with lower levels of education and income being particularly at risk of having low health insurance literacy. This can lead to delayed or forgone healthcare, as consumers are unable to understand the financial and health implications of insurance plans.

The complexity of health insurance terminology and rules confuses consumers, and even those with higher levels of education may struggle with health insurance concepts. For example, a study in Connecticut found that overall, subjects answered only 62% of questions about health insurance terminology and usage correctly, with black and Hispanic enrollees having even lower scores. Similarly, a national study found that 51% of respondents had inadequate knowledge of basic health insurance terms.

Other types of insurance, such as car and home insurance, may be easier for consumers to understand as they are generally less complex than health insurance. However, it is important to note that insurance literacy can still vary by type, with some people finding certain types of insurance more difficult to understand than others. For example, people with pre-existing health conditions or unique medical needs may find health insurance easier to understand than those without such needs. Additionally, those with experience owning a car or a home may have an easier time understanding the respective insurance policies.

Overall, insurance literacy is a critical issue that can impact an individual's ability to make informed decisions about their insurance choices and access necessary services. While health insurance literacy has been found to be particularly low, other types of insurance may also present challenges for consumers in terms of understanding and navigating their options.

What are the implications of insurance illiteracy?

Implications of Insurance Illiteracy

Insurance illiteracy has been shown to have a direct impact on the efficient use of healthcare services. Patients with poor health insurance literacy (HIL) are more likely to delay or even forgo care. They are also less likely to use preventive services and more likely to frequent the emergency department for care.

In the US, more than half of adults rate themselves as having inadequate HIL. This is a major concern in the community that disproportionately affects some underserved groups more than others, including young adults, groups with low income, and people who are uninsured.

Research has shown that a large percentage of medical students are unaware that healthcare costs per person in the US are the highest in the world. Many students underestimate the number of patients who are uninsured. Medical students have consistently reported that they did not believe their health policy or health insurance education was adequate. When surveyed, only 17% were aware of the specific Medicaid eligibility requirements in their states, and 38% were unsure if their states had expanded Medicare.

A study on middle-class consumers in Sri Lanka revealed that consumers' insurance literacy directly and indirectly impacts their behavioural intention to purchase personal insurance, significantly and positively. The study also showed that there is a significant difference between those who have and do not have insurance in terms of insurance literacy, trustfulness, and perceived value of insurance.

• Increased consumer education: This includes simplifying benefit structures and promoting value-based care, supporting delivery system reforms, and designing services to be responsive to consumer HIL needs and abilities.
• Improved health insurance literacy: This includes developing and testing effective methods to improve consumer HIL and decrease associated health disparities.
• Changes to the healthcare system: This includes promoting value-based care and supporting delivery system reforms.
• Changes to the health insurance industry: This includes designing or redesigning services and materials to be more responsive to consumer HIL needs and abilities.

Frequently asked questions