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From Health Law Daily, September 30, 2013

Exchange-eligible individuals less prepared to choose most appropriate plan

By Kathryn S. Beard, JD

Individuals who will be eligible for health insurance subsidies from the federal government under the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148) are less prepared to choose an appropriate health care plan due to lack of financial literacy. A study from Health Affairs found that individuals with incomes between 100-400 percent of the federal poverty line ($25,550-$94,200 annually for a family of four), who are eligible for subsidies and are most likely to enroll in the health insurance exchanges, have lower financial literacy levels than wealthier individuals. The study’s findings suggest that low-income consumers may need targeted policies to support making good choices, possibly above and beyond the support measures already planned under PPACA.

Health insurance exchanges. The exchanges, or marketplaces, are tools created by PPACA to provide individuals and small businesses with the opportunity to compare various available health care plans. The exchanges will offer consumers active guidance through navigators and help lines, as well as passive support. The passive support is through the structure of the exchanges; available plans are organized into tiers based on actuarial value. There are four available tiers (bronze, silver, gold, and platinum), and each tier is divided into three levels (low, medium, and high). Choosing between the available plans requires comparing deductibles, co-payments, out-of-pocket limits, and other plan attributes, as well as determining the individual’s health risks. Despite explanations in the exchanges, most consumers have little experience or proficiency in selecting health insurance. Experience is even limited among individuals who currently have employer-provided health insurance. More than 80 percent of employers offered only one type of plan in 2012.

Financial literacy. In order to successfully navigate the choices available in the exchanges, as well as to understand the subsidies and penalties under PPACA, individuals must have a sufficient understanding of complex financial relationships. Without such an understanding, consumers may lack the understanding, ability, and confidence to make financial choices in their best interest. Financial literacy, “the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being,” may be critical to achieving PPACA’s coverage objectives. PPACA’s success depends upon consumers’ decisions to purchase or not purchase health insurance, which partly depends on expected costs.

In a three-question survey, which involved one question each from the fields of numeracy, inflation, and risk diversification, Health Affairs found that financial literacy was particularly low for the population eligible to receive subsidies. Respondents earning 100-400 percent of the federal poverty level answered 1.9 of three questions correctly; respondents with income between 400-1000 percent answered 2.4 questions correctly. Across all groups, individuals without health insurance performed worse on all financial literacy measures. Individuals with low financial literacy may have difficulties responding to PPACA’s opportunities and requirements. Despite the subsidies PPACA created for individuals earning between 100-400 percent of the federal poverty line, low levels of financial literacy may prevent eligible consumers from obtaining tax credits, therefore reducing the benefits they obtain.

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