Understanding the options: An essential ingredient in our evolving health care system

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PATIENTS: Do seniors understand their options when they enroll in Medicare? For that matter, how well do people of any age understand how their health insurance works? Consumer education—and more important, consumer comprehension about healthcare and health insurance—is critically important in an era of expanding choices.

Medicare has long offered alternatives to traditional Medicare through Medicare Advantage plans (and their precursors, which have been available since the mid-1980s) and, more recently, Medicare prescription drug plans under Part D. Initially, educational outreach to beneficiaries was limited to publications similar to Medicare & You, whose 2014 edition is 152 pages long.1 For most people, that is 151 pages too many. They need an immediate answer to their questions, without having to wade through other materials that address different issues. The long-standing challenge has been to find ways that cut through the murk of regulatory whys and wherefores without misleading beneficiaries.

The Centers for Medicare & Medicaid Services offers a plan finder at Medicare.gov that allows seniors to compare their alternatives, including traditional Medicare, Medicare Advantage plans, and stand-alone prescription drug plans. A search for plan alternatives serving Washington, DC, reveals that 11 comprehensive health plan choices (including traditional Medicare), 31 stand-alone drug plans, and 7 different categories of information about those alternatives are available.

Even so, the plan finder leaves out some important information. The most serious omission: Medigap plan information is left out. Those plans are purchased separately by enrollees in traditional Medicare and are considered by many to be an integral part of their coverage.

In its attempt to provide reasonably complete information about plan alternatives, the plan finder produces information overload. Many people are likely to be overwhelmed by the cacophony of insurance terms and conditions. The plan finder provides data, but it does not help seniors understand what to make of those data.

PAYERS/PROVIDERS: What many of us know from the introduction of Medicare Part D is that seniors, even those who are comfortable with computerized searches, often need to talk their choices over with a trusted individual before they are comfortable committing to a particular plan. Call centers and more sophisticated interactive responses can help fill that need, but informed family members and friends in the community are more likely to be relied on to help decide which plan to select.

Are there too many plan choices, making it difficult for seniors to select the best option?2Should we limit the number of plan options, or should we improve the way we communicate with beneficiaries and make a greater investment in effective just-in-time education?

New evidence from Medicare Part D suggests that better education and communication can pay off in improving the decisions made by seniors about their plan choices. A study of more than 71,000 enrollees in stand-alone drug plans found that seniors often did not select the lowest cost option when they first enrolled in 2006.3 However, even with less than 1 year of experience in Part D, 81% of these individuals were able to reduce their overspending by an average of $298. The greatest gains went to those who switched plans.3

This demonstrates the importance of actual experience and the ability of seniors to learn from their mistakes in selecting health plans. It also shows that seniors are able to use information about plan choices if that information is provided in ways that can be understood by people who are not insurance experts.

The implications of this analysis extend well beyond the Medicare program. The Affordable Care Act created health insurance exchanges offering a choice of health plans to individuals who are not already covered by insurance. Large firms are increasingly moving to private exchanges to provide more plan choices for their employees.4 Better decisions by consumers will drive competition and will improve health system efficiency, and that depends in large measure on the way information about health plan options is presented.

  1. Centers for Medicare & Medicaid Services. Medicare & You. 2014 edition. September 2013. www.medicare.gov/Pubs/pdf/10050.pdf. Accessed October 14, 2013.
  2. The Incidental Economist. Too many choices. AcademyHealth Blog. September 25, 2013. http://blog.academyhealth.org/too-many-choices/. Accessed October 14, 2013.
  3. Ketcham JD, Lucarelli C, Miravete EJ, Roebuck MC. Sinking, swimming, or learning to swim in Medicare Part D. Am Econ Rev. 2012;102:2639-2673.
  4. McCann D. Aon Hewitt Scores 15 Big Private-Exchange Clients. CFO.com. September 18, 2013. http://ww2.cfo.com/health-benefits/2013/09/aon-hewitt-scores-15-big-private-exchange-clients/. Accessed October 14, 2013.
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