Check the Label: Helping Consumers C A L I FOR N I A Shop for Individual Health Coverage H EALTH C ARE F OU NDATION Introduction consequence, these uninsured Californians increase Californians face a major financial decision when their risk for both health and financial difficulties. they select health coverage for themselves and their families in the individual market. In attempting The California HealthCare Foundation (CHCF) Issue Brief to identify the best choice, they encounter an funded research to examine the difficulties people array of complex information. Most of the plan encounter in choosing individual health insurance, descriptions come from the insurers’ or brokers’ and to assess the usefulness of presenting coverage sales literature, raising issues of consumer information that allows more direct comparison confidence. Many insurers offer a large number of cost and overall value. Specifically, CHCF of plans with different benefits, exclusions, and commissioned the design and consumer testing of costs, making direct comparisons difficult. In fact, a standardized reporting format called “Coverage a San Franciscan looking for individual insurance Facts.” The HSM Group, a market research currently has at least 109 options, ranging from firm, conducted six focus groups in Concord, comprehensive to very basic coverage. Such choices Fremont, Irvine, Los Angeles, and Sacramento are proliferating; in 2001, there were only about a to test consumer responses to the Coverage Facts third as many options. approach. The 57 participants had three things in common: Millions of Californians are affected by the K They had shopped for individual insurance difficulty of selecting their own coverage. The within the last two years; state’s individual health insurance market serves K They had incomes above 300 percent of the about 2.9 million people. In addition, it is the primary potential source of coverage for a large federal poverty level; and proportion of the state’s 6.6 million uninsured. K They were not currently enrolled in Consumers in the individual market face particular employment-based or public insurance. challenges. Lacking employer assistance, many struggle to afford insurance and must directly This issue brief describes the findings of that confront trade-offs between upfront premiums qualitative research and discusses the implications and costs incurred when they receive care. for policymakers, regulators, and insurers. Furthermore, medical underwriting required by insurers prevents many consumers from qualifying Inspired by a Can of Soup for coverage at all.1 But even among those who Just as the “Nutrition Facts” label on a soup can might reasonably afford coverage and meet provides a standardized, reliable analysis of what underwriting standards, many hesitate to move consumers are about to eat, the Coverage Facts forward with a purchase that has expensive and label would present health insurance products poorly understood implications for them. As a according to standardized measures of value. In addition to premiums and major benefits J une 2008 Coverage Facts Findings Individually Purchased Health Insurance, 2006 Two major themes emerged from the research. Consumers want standardized information that enables them to PLAN B (HMO) make direct “apples to apples” comparisons across key Monthly Premium $306 benefit and cost dimensions. At the same time, they want assurance that the information is complete, accurate, and Percent of Expense Paid by Insurance 85% that insurers are required to deliver what they promise. Annual Out-of-Pocket Expense (OOP) Specific findings from the consumer focus groups include: If your health is average $493 Product comparisons. Consumers said they want to Your Total Annual Cost (Premium + OOP) If your health is average $4,165 make product comparisons more easily, and many were pleased by the standardized layout of the “Coverage Benefit Levels Facts” because it facilitates side-by-side comparison. Some Annual Deductible $0 participants said the labels would help them narrow their Out-of-Pocket Maximum $3,000 Office Visit Copay $40 choices or make a decision. One said: “I would eliminate Rx Copay (generic/brand name) $15/$25 what I don’t want immediately, and I would focus on Rx Brand Name Deductible $100 what I want a lot more quickly.” Lifetime Maximum Unlimited Preventive Care $40 Value measures. Consumers found the value measures Outpatient Surgery $250 Maternity yes (see Figure 1 on page 3) useful. After the deductible, they Inpatient Cost-Sharing $1,500* ranked the percent of expense paid by insurance as their Emergency Room Visit $100 most important consideration. Some said they used the value measures to think through the trade-offs: “You scan *Inpatient deductible of $1,500 per calendar year. across and you see [$142] is the cheapest [premium]… but then there’s the high deductible and the percent information, the prototype labels include three related [paid by insurance] is not very high… so you start measures of value: reevaluating.” .Percent of expense paid by insurance. An estimate 1 of the average share of consumers’ costs that would be Complexity. Consumers recognized the complexity of paid by insurance versus out of pocket. For example, insurance coverage and referred often to the importance Plan B would cover 85 percent, while Plan F would of the “fine print” and “exclusions.” They wanted to pay only 43 percent. (See labels, page 3.) understand what they were buying and some requested additional details. A lack of confidence in the accuracy of 2.Annual out-of-pocket expense. An estimate of the plan descriptions and concerns about making the wrong costs incurred at the point of service for consumers choice or not understanding what was being covered were with average health care needs.2 For example, out-of- cited by consumers as reasons why they did not have pocket expenses would average $493 for enrollees in insurance. Plan B, an HMO, but would average $2,383 in Plan F, a high-deductible PPO. Issues of trust. Issues of trust pervaded the participants’ 3.Total annual cost. The sum of the annual premium attitudes about choosing health insurance. Many were plus out-of-pocket expenses. concerned that insurers intentionally obscured consumer 2  |  California HealthCare Foundation Coverage Facts Individually Purchased Health Insurance, 2006 PLAN A (HMO) PLAN B (HMO) PLAN C (HMO) PLAN D (PPO) PLAN E (HSA) PLAN F (PPO) Monthly Premium $276 $306 $347 $407 $142 $175 Percent of Expense Paid by Insurance 82% 85% 69% 60% 54% 43% Annual Out-of-Pocket Expense (OOP) If your health is average $585 $493 $994 $1,669 $1,944 $2,383 Your Total Annual Cost (Premium + OOP) If your health is average $3,897 $4,165 $5,158 $6,553 $3,648 $4,483 Benefit Levels Annual Deductible $0 $0 $1,500 $500 $2,750 $2,400 Out-of-Pocket Maximum $3,000 $3,000 $3,000 $5,000 $2,750 $3,200 Office Visit Copay $25 $40 $10 30%* 0% after ded 30%* Rx Copay (generic/brand name) $10/$30 $15/$25 $10/$30 $10/$30 0% after ded 30% after ded Rx Brand Name Deductible $250 $100 $150 $250 Integrated* Integrated† Lifetime Maximum Unlimited Unlimited Unlimited $5 million $5 million $6 million Preventive Care $25 $40 $10 30%* $20† $35‡ Outpatient Surgery $250 $250 $250* 30% after ded† 0% after ded 30% after ded Maternity yes yes yes yes Not covered yes Inpatient Cost Sharing $250/day* $1,500* $250* 30% after ded† 0% after ded 30% after ded Emergency Room Visit 20%† $100 $50 $100 copay + 30% 0% after ded $75 + 30% after ded *Up to four days, *Inpatient deductible of *Only inpatient hospitalization *Your share of negotiated rate *Prescription drugs are subject *Your share of negotiated rate then no charge. $1,500 per calendar year. and outpatient surgery (deductible waived). to the general deductible. (deductible waived). † subject to deductible. † Your share of the negotiated † Deductible waived for up to † Prescription drugs are subject Your share of the negotiated rate. rate after deductible is met. $200 of preventive care/year. to the general deductible. ‡ Deductible waived. Figure 1. onsumer Ranking* of Label Elements C obligations to pay for care — through exclusions, fine Annual Deductible POINTS print, or complex configurations. Some believed that the 68 coverage might not be there for them when and if they Percent of Expense Paid by Insurance really needed it. Participants voiced distrust of carriers and 51 brokers to accurately quote rates and describe benefits. Out-of-Pocket Max 44 They wanted assurance that the products had been fairly Office Visit Copay and fully depicted. 35 Annual Out-of-Pocket Value Measures Seal of approval. Consumers said they want the 32 product information to reflect the endorsement of a Your Total Annual Cost trusted, independent body that would assure thorough, 28 accurate product descriptions and hold health insurance ER Visit carriers accountable to fulfill coverage promises. As 19 one participant put it, “The key would be who would Rx Copay be putting this out.” Consumers most often said that 17 the Coverage Facts should be published by California Lifetime Max insurance regulators or by a nonprofit foundation. Many 11 * he 57 participants selected the three most important T responded positively to the “nutrition label” format All Other factors on the label. Three points were given to the most important, two points to the second most important, and because they said it implied validity and approval. 10 one point to the third most important. Source: The HSM Group, CHCF-funded focus group research, December 2007 and May 2008. Check the Label: Helping Consumers Shop for Individual Health Coverage  |  3 Starting point for shopping. Participants had been coverage, helping consumers assess their options has the unable to locate existing resources to help them evaluate potential to align with health plan business interests and their insurance options. Several major broker sites provide coverage expansion policy goals as well. side-by-side comparisons of products from different carriers; a feature to sort plans by premium; customer ratings; and premium quotes that do not require extensive Author personal information. Yet, most participants were unaware Katherine B. Wilson, consultant of these online resources, and many described negative experiences seeking information online. A c k n ow l e d g m e n t The National Opinion Research Center’s work to assess the Conclusion value of California individual health insurance products provided the basis for prototype coverage labels. Standardized reporting and value measures could assist consumers in understanding their options and selecting Endnotes coverage that best fits their budgets and their needs. 1 . For details on medical underwriting of individual health Further, a “seal of approval” accompanying Coverage insurance, see the California Department of Insurance Facts labels could bolster consumer confidence that Web site. www.insurance.ca.gov/0100-consumers/ the products they were considering would provide the 0070-health-issues/ind-health-insurance-underwriting- benefits described. ab-356.cfm 2.Out-of-pocket spending estimates are based on service use To bring the Coverage Facts prototypes into an actual patterns for non-elderly enrollees of commercial plans; reporting system would require additional testing, most of these people were not required to pass a medical refinement, and resources. In particular, any methodology exam. The relatively healthy population covered through for assigning actuarial values to health insurance products the individual market would likely incur lower out-of- would need to be fully developed and vetted. Many pocket costs for each product than those presented in the questions would arise in that process; for example, how prototype labels. would out-of-network care be handled, and should value measures be estimated for different consumer use levels? With more than 100 individual insurance products sold in California today and many others under development, maintaining value measures would be an ongoing and costly effort. These findings offer insights for policymakers, regulators, and stakeholders concerned about the standards for benefit comprehensiveness and transparency to which health plans should be held. Consumers considering the purchase of health insurance through California’s individual market say that greater clarity about the value of alternative options would help them compare and choose. Because lack of confidence prevents some consumers from exploring and buying individual 4  |  California HealthCare Foundation