Choosing a Health Plan Is Hard, Even for a Health Economist

A confession: I am a health economist, and I cannot rationally select a health plan.

I buy health insurance through the Federal Employees Health Benefits Program, or F.E.H.B.P., which is very similar to the Affordable Care Act's exchanges. Like the exchanges, the federal employee program runs an online marketplace with a choice of plans, which vary by region.

Most workers don't have a lot of choice among plans offered by their employer. But the federal employee program offers me about 20 plans to choose from, and a similar number to almost all other federal employees. This puts me in a position akin to a consumer selecting among many plans in an Affordable Care Act exchange or a Medicare beneficiary selecting among many Medicare Advantage plans.

I have a lot of sympathy for consumers in these markets. Comparing health plans is hard, even for a health economist like me. (And it's arguably harder on the Affordable Care Act exchanges, where consumers may also need to report income and apply for subsidies. Federal employees just need to choose a plan.) Each year when I shop for coverage through my employer, I feel like I'm buying myself at least as much grief as I am insurance.

In one sense, buying health insurance is not different from buying any other product, like a laptop computer or a refrigerator. There are two things to consider: how much you pay (the price) and what you get (the quality). Quality can mean a lot of things for a health plan, and your criteria may differ from mine. For me, the most important aspect is which doctors and hospitals are in its network and, hence, most generously covered. (Some plans cover out-of-network providers less generously; some not at all.)

A health plan's price is more amenable to quantitative analysis, but still hard to assess.

Each laptop has a sticker price, as does each refrigerator. Health insurance has not one but many price-like characteristics. The premium is the most salient price, perhaps. But there are lots of others like co-payments (fixed dollar amounts you pay each time you visit a doctor, get a lab test or pick up a prescription), co-insurance (a percentage of the cost you pay for each visit, test or prescription), and deductibles (how much you pay before your plan pays a single dollar). Complicating matters, deductibles do not apply to every service, and co-payments and co-insurance can vary by service - a different amount for a hospital stay vs. a primary care visit vs. a visit to a specialist, for a brand-name drug vs. a generic, and so forth.

Given all this, computing something like a sticker price for a plan is daunting. The actual amount an insurance plan will cost me next year is its premium plus a complex interaction of its various other prices with the specific types of health care services my family will use. Fortunately, for federal employee plans, there is an online resource that helps simplify this calculation. Using The Guide to Health Plans for Federal Employees & Annuitants, federal employees can compare the total cost of premiums and cost sharing of plans for low, average and high levels of health care spending. (Low is about $3,000 in annual health care spending, and high is about $30,000.) This guide, which I have used, also includes plan quality ratings. A similar guide exists for the Illinois Affordable Care Act exchange, but for no others.

One problem is that I don't know how much or what kind of health care services my family will use next year. But based on past experience, I can make a reasonable guess as to whether it will be low, average or high. Seeing how my total cost for each plan varies across that range helps me understand the consequences of increases or decreases in use.

But I would find it helpful to supplement that approach with a more precise calculation based on the level of health care my family tends to use. For instance, how much would each plan have cost me last year? The answer is a much closer analog to the type of sticker price one sees for refrigerators and laptops. I'm aware of no online insurance market that provides this type of information.

Already, the lack of price transparency is enough to make a health economist despair. But it gets worse.

Some aspects of plan quality are available to most consumers, like consumers' ratings of customer service and how well doctors in each plan communicate with their patients. But a crucial feature of health plans is not as easily or widely accessible: the extent to which each covers services provided by one's favorite doctors and hospitals. Except on a handful of Affordable Care Act exchanges and for federal-employee participants in the Washington area, such network information is typically available only on plans' websites, making gathering and comparing plan networks prohibitively difficult. Moreover, which doctors are in a plan's network can change over time.

If I could not precisely price a laptop or assess the size of a refrigerator (or if that size could change after I bought it), I'd have a great deal of difficulty selecting the right one for me and my family. So when I shop for a health insurance plan each year, I have very little confidence that the one I select is the one I would choose were I to have more information available to me.

And, as a health economist, I have very little confidence that a market with this degree of opacity of prices and quality can serve consumers well. Indeed, research has shown that Medicare beneficiaries have great difficulty in selecting the lowest-cost prescription drug plan. (A Medicare drug-plan pricing and coverage tool is available on the Medicare website, but it's a fair bet that most beneficiaries do not use it.)

Insurance markets do not need to be this opaque. We have the technology to track health care use electronically and to create online tools that could tell every health insurance consumer exactly how much each plan would have cost them based on prior-year utilization (as well as for a range of other utilization levels) and to what extent services provided by the doctors they saw and hospitals they visited would be covered next year. This is an effort that some policy experts have called for.

Though the Affordable Care Act's exchanges are new, some markets in which consumers can select among many plans are not. The F.E.H.B.P. has existed with plans in competition since 1960. The competitive Medicare Advantage market grew out of predecessor programs that stretch back nearly 30 years.

Despite this long history, we do not yet offer consumers the tools they would need to become anything like rational market participants. This could change. Companies such as Picwell and Consumers' Checkbook are working on developing and expanding consumers' access to such tools. This is welcome news, and it's about time.

If even a health economist will confess to needing better access to price and quality information when choosing a health plan, it's a sure bet that many other Americans need it as well.