Employees don’t understand basic insurance terms. Here’s how advisers can help

Nearly half of employees don’t understand basic insurance terminology, which may cause workers to spend more out of pocket on health insurance.

That’s according to a new survey of 1,400 individuals from consumer directed healthcare solutions company Alegeus. The company found that most employees don’t understand basic information about health insurance, and many aren’t saving money for healthcare. As a result, employees may not invest in benefits options like healthcare savings accounts that allow them to spend pre-tax money on healthcare, Alegeus says.

“Fluency levels continue to be low and as a result consumers are leaving a significant amount of dollars on the table in the form of missed tax savings,” says Jennifer Irwin, senior vice president of marketing and strategy at Alegeus.

Irwin says that because employees may not understand basic information about HSAs, flexible spending accounts and health reimbursement accounts, they could be missing out on tax savings. If employees chose to use pre-tax dollars on healthcare, they could save an average of 30% on healthcare each year, the survey notes. Alegeus forecasts that 78% of employees will spend post-tax dollars on healthcare in 2018 ($285 billion) while only 22% spent pre-tax money ($86.3 billion).

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Medical examination tools hang on a wall in an exam room at Perry Memorial Hospital in Princeton, Illinois, U.S., on Wednesday, Oct. 11, 2017. Senate in both political parties say they've reached agreement on fixes to stabilize Obamacare just two weeks before Americans start signing up for 2018 coverage. Photographer: Daniel Acker/Bloomberg

“It definitely just illuminates the fact that consumers are still struggling across the board,” Irwin says.

While they may not be saving money for healthcare, out-of-pocket healthcare costs are still a major concern for employees. More than half of the respondents say they couldn’t forecast the amount of money they would have to spend on their own on insurance. Roughly 58% of respondents were unaware or underestimated the amount of money they would need for healthcare in retirement. The average 65-year-old couple in 2018 needs $280,000 saved to cover healthcare expenses in retirement, according to data from Fidelity Investments.

“Many consumers are not saving at a rate for the future that would set themselves up to be in a good situation for those out-of-pocket costs,” Irwin says.

The idea that employees are unprepared to purchase healthcare is far from new. A recent survey from UnitedHealthcare found that employees spent less time preparing for open enrollment, even though they felt confident about signing up for benefits. Alegeus’ findings echoed these results. While 66% of respondents were confident they understood basic insurance terminology, only half could answer simple true/false questions about premiums and deductibles correctly.

Irwin says advisers should realize that companies aren’t doing a great job of communicating benefits to their employees. Advisers should encourage employers to reinforce these concepts throughout the year, making open enrollment a continuous conversation.

“Keeping a steady cadence around the benefit program will ensure that it’s more top of mind at the time that it is needed,” she says.

Another factor, she adds, is ensuring employees have the tools they need to compare and select the most appropriate health plan. This can include anything from plan comparison calculators to a hotline where they call with questions, Irwin says.

Among some positive findings, a majority of survey respondents say they are able to track spending, curb impulse purchases and have established clear financial goals. HSA participants, Irwin says, were overall more fluent, engaged in healthcare, more likely to make savvy spending decisions and more likely to be disciplined about saving for the future.

“There’s still a lot of room for improvement, but I think that is kind of a ray of hope that consumers can get there,” she says.

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