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Coverage Fact Labels For Various Medical Services: Will They Be Useful

It’s official now.  The government has proposed that descriptions of health insurance policies will resemble those nutritional labels on canned and packaged foods—the ones you look at to find out how much sodium there is in Birds Eye peas versus the A&P brand.  Instead of getting the scoop on salt or sugar, shoppers will learn what they have to pay out-of-pocket for various medical services.  They’ll also get some general information, like what services are not covered, and how much they’ll have to pay for maternity and diabetes care and breast cancer treatment, all organized in a standard format designed for easy comparison shopping.  Insurers will have to translate common insurance jargon into plain English.

The health reform law requires these “Coverage Fact Label” disclosures, and tasked the National Association of Insurance Commissioners (NAIC) with creating them.   The NAIC released some samples a few weeks ago.  Theoretically, consumers armed with this information will choose wisely, and as free-market advocates say, their choices will regulate prices that insurers will charge.   If consumers choose the low-cost plans, then prices will come down and policies with the best benefits will flourish.

Next March, consumers supposedly can get their hands on these labels.  But it won’t be so simple until 2014 when the reform law is fully effective, and the labels are required for state insurance exchanges.  Until then, says Washington and Lee law professor Tim Jost, the regulation says shoppers in the individual market will have to ask for them.  A company doesn’t have to provide the label, but must tell consumers they can find some policy information on a government website,  If you get insurance from an employer, the employer is required to produce the labels only when you first choose a health plan.  If you decide to switch plans at the next open enrollment period, your boss must provide a disclosure only for the plan you already have.  You’ll have to ask for the others.

The insurance industry, it seems, is not keen on providing this information, and insurers along with business groups are fighting hard to exempt large employers from the rules, arguing that the costs are too great. Robert Zirkelbach, a spokesman for the AHIP, the industry trade group, says that since most large employers customize benefits packages this new requirement would mean that some plans would have to create tens of thousands of different labels.

Based on a long career reporting about consumer disclosures, my take on the labels is that they promise more than they can deliver.  Some of the information is useful, such as standardization of the definitions of deductibles and out-of-pocket limits, and copayments and coinsurance.   Consumers need to understand the difference between a copayment—a fixed dollar amount you pay for a particular service and coinsurance—a percentage of the actual bill you will pay. This is especially important since employers are moving away from small copayments to huge amounts of coinsurance that could really pinch the family budget.   There’s a big difference between paying 20 percent of a bill or 40 percent.   The amount of coinsurance could be a deciding factor in the choice of a policy.

But labels hardly tell the whole story.  What you don’t know and probably can’t find out is what the doctor charges for a service in the first place.  Those charges depend on the fees the health plan has negotiated with the doctor, which are deep, dark secrets.  Since the coinsurance is applied to those amounts, a plan with low coinsurance for a service with a high price tag may end up costing you more out of pocket than one with high coinsurance applied to a smaller bill.  Without that information, you can’t be absolutely sure one plan will be better than another when you really get sick.  Shopping for a policy and using it are two very different experiences.

Similarly, the examples of coverage and costs given for the three required conditions may be helpful for people needing maternity and diabetes care or breast cancer treatment, but not for others with different ailments.  Because one carrier discloses that it has a low price for breast cancer treatment doesn’t mean that price tags for gallbladder surgery or repairing a broken leg will also be low.  What’s to prevent an insurer from low-balling to reel in business for certain procedures and jacking up the prices for others?

In my experience, the usefulness of consumer information is often directly proportional to how much businesses scream about disclosures that can actually impact their business practices.  That’s why operators of bad nursing homes have hidden or made it difficult for the public to see their state inspection surveys, which they are required to post in a prominent place.  These reports show in detail how a home may be harming its residents.  And the banking industry finally succeeded in eviscerating the federal Truth-in-Lending Act, which standardized disclosures for the cost of credit and revealed to consumers what they were actually paying to finance a purchase.

Only time will tell whether the Coverage Fact Labels will end up hidden away because they turn out to be effective at disclosing negative features of insurance policies, operate more like the Truth-in-Lending Act which is mostly meaningless or  resemble those nutrition fact panels that shoppers use only sporadically.

*This blog post was originally published at Prepared Patient Forum: What It Takes Blog*

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