New labeling aims to help consumers figure out health insurance benefits

Susan Johnston

Confused about which health insurance policy would fit your needs? You’re far from alone. In a 2011 survey by McKinsey & Co., nearly three-fourths of American consumers said health insurance is complicated and difficult to understand.

Help is on the way, though. Health insurers soon will be required to present information about health insurance plans in a standardized format that’s designed to assist consumers in understanding their benefits and making more informed decisions. The change is set to take effect in March 2012 and will, according to the nonprofit Consumers Union, affect about 180 million Americans.

Teresa Miller, Oregon’s insurance administrator, says the goal of the new health insurance “labeling” is “to provide clear information for the consumer, which allows them to compare different policies on an apples-to-apples basis.”

This is an example of a health insurance “label” — similar to a nutrition label for food products — that details the costs of having a baby.

Under the federal health care reform law, all health insurance plans — including group and individual — will be required to use the standardized form. An early version of the form was introduced by the U.S. Department of Health and Human Services in August 2011. But you may not see the new form until you’re shopping for health insurance coverage, starting a new job or going over benefits during your employer’s “open enrollment” period.

Included in the proposed six-page disclosure form is a new chart called a Coverage Facts Label, which is similar to a food label that lists calories, fat grams and other nutrition facts. Instead of merely listing deductibles, co-pays and other health care costs, a Coverage Facts Label looks at three common health care scenarios and shows consumers what they hypothetically would pay and what each health insurance plan would cover.

“Traditionally, consumers see a laundry list of health plan features, and it’s up to the consumer to blend that all together and figure out how much coverage they would have,” says Lynn Quincy, senior health policy analyst for Consumers Union and co-author of her group’s report on the Coverage Facts Label. “This turns everything on its head by taking a specific medical scenario and showing you” how much coverage you’d have under any plan.

During Consumers Union’s consumer interviews and testing, participants reacted favorably to the Coverage Facts Label, which included sample costs for having a baby, treating breast cancer and managing diabetes. Although these hypothetical scenarios did not apply to most of the participants, Quincy says consumers still found the information useful.

Not only did the Coverage Facts Label allow consumers to see what the plans covered (or did not cover), it also “reminded them that an unexpected medical event could happen,” Quincy says. “They found it eye-opening to see how much things cost.”

However, a Coverage Facts Label is not a cost calculator, so even if a consumer fits into one of the hypothetical scenarios, his or her insurance plan and associated costs might be different. “The labels are really designed to show you how a particular policy may work using general national cost averages,” says Mila Kofman, former superintendent of insurance in Maine and now a research professor at Georgetown University’s Health Policy Institute.

Although some insurers may balk at the additional paperwork (they must provide versions of the Coverage Facts Label for every possible plan), this new level of transparency could prove a boon to the health insurance business in the long run.

According to David Sandman, senior vice president at the New York State Health Foundation, which supported the Consumers Union study, “informed customers are good customers, and we actually discovered through this research that the patient’s portion (of expenses) appeared more reasonable when they were presented with all the costs that are involved with something like having a baby, so it made it look like a better value.”

Kofman says the health insurance labeling may encourage insurers to provide better service and more competitive coverage.

“When you think about competition, if you’re not happy, you can take your dollars somewhere else,” she says. “But in the health insurance market, that hasn’t been the case, because if you’re not happy with your current health insurance company, you may be stuck there because you may have (pre-existing) medical conditions. Right now, the rules are not really designed to reward companies that are efficient and provide great services.”