Bad exchange decisions could cost consumers billions

One looming problem for public exchange enrollment under the Patient Protection and Affordable Care Act could be a (very) costly one to consumers.

A study from the Columbia School of Business found that more than 80 percent of consumers unknowingly will choose a higher cost health care plan than they need.

The total bill for these mistakes? $9 billion.

“Consumers’ failure to identify the most appropriate plan has considerable consequences on both their pocketbooks as well as the cost of the overall system,” said Eric Johnson, co-author of the report and co-director of Columbia Business School’s Center for Decision Sciences.

“If consumers can’t identify the most cost-efficient plan for their needs, the exchanges will fail to produce competitive pressures on health care providers and bring down costs across the board, one of the main advantages of relying upon choice and markets,” Johnson said.

Johnson has advised several state health exchange systems on their designs and structure.

To get the estimate, researchers from the school used simulated exchanges modeled on the design of the actual exchanges.

Researchers found the average consumer stands to lose on average $611 — roughly half a week’s salary for a family making $42,000 per year — by failing to choose the most cost-effective option for their needs.

And, because the federal government will subsidize many policies, American taxpayers could pay an additional $9 billion for consumers’ mistakes in choosing more costly plans.

But Johnson and his colleagues identified several mechanisms that significantly improved outcomes for the consumer, they said. And it's a two-way street as both consumers and exchange designers could improve the exchange experience.

They suggested consumers “estimate first; peruse the plans second;” educate themselves about the basics of health insurance and have a calculator on hand.

As for the exchanges, researchers suggested exchanges limit the number of choices in health care plans to avoid consumer confusion; include tutorial links and pop-ups that explain basic health insurance terms; and include online tools for the consumer including smart defaults, and cost calculators.

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