We’ve all seen the ads for auto insurance: “15 minutes can save you….” And it’s true, most of us could make a decision about auto insurance in 15 minutes. But the thought of making a decision about health insurance has most of us feeling like we need to set aside an entire weekend to work on it, or – worse – putting it off indefinitely because it is so daunting.
Purchasing Car Insurance Is Pretty Straightforward
Buying auto insurance is something most of us know how to do. We are required by law to have it, and, because employers have never sponsored it, it’s something we typically learn to purchase as a young adult. It is designed to protect against a “catastrophic” loss – an unexpected event that, if not covered, could cause significant financial loss. We recognize that it’s not intended to cover routine maintenance or even bigger ticket items that, while not exactly expected, are the kinds of things that are bound to happen as a car ages (exhaust systems, new brakes, etc.). We’ve learned that we need to budget for possible larger repairs, and I would bet most of us are able to do so reasonably well and that we get better at it over time. Even if we don’t have a lot of experience budgeting and paying for car issues, it is pretty straightforward to get cost estimates once something does happen, and we often have easily-understood choices as to whether and how to fix it.
I think most of us understand that increasing our deductible is a reasonable strategy for lowering our premium – as long as we can afford the deductible. We can do the math, assess our risk, factor in our risk tolerance, and decide on a policy. It’s a pretty basic financial budgeting and risk tolerance equation.
Purchasing Health Insurance Is Tricky
In comparison, health insurance befuddles even the best of us. By design, it blurs the lines between “catastrophic” protection and coverage for “routine maintenance,” since it typically does provide some coverage for preventive care, along with injury/illness-related care, regardless of the severity or the cause. This muddies the deductible/premium tradeoff decision significantly. I think most of us would admit that we don’t have a good idea of how and how much to budget for healthcare. Costs are not transparent, and we haven’t been in the habit of asking how much a procedure or medication costs before our doctor prescribes it. We also typically don’t have a good understanding or acknowledgement of our real health risks (for example, we tend to be in denial about the fact that the “wheels start to come off” as we head into late middle age).
Buying health insurance is simply not something most of us have learned to do well over time, particularly since employers have historically sponsored our health insurance. In addition to obscuring the true cost of insurance, this also typically meant that our choice was limited and the risk of making a truly bad decision for ourselves was minimized (and would effectively be “someone else’s fault” if the insurance didn’t work out well for us).
We have a ways to go before buying health insurance is as easy as buying auto insurance, but some forces are driving toward a better consumer experience. Having health insurance is now mandated, and consumers are getting savvier about the costs of health services as the data become more widely available and as they have more at stake under higher-deductible plans. We’re also learning how to frame the cost implications in a way that helps consumers make a better decision for themselves. Finally, with the emergence of more data, we can start providing better feedback to consumers about how well (or not) their choices worked – so they can learn to make better decisions over time.