Picwell Blog

5 Reasons Why Your Employees Choose Expensive Health Insurance

Jan 9, 2020 4:09:45 PM / by Picwell

When your employees choose a health plan, they’re making a complex decision for themselves and their families. Unfortunately, since the benefits world is so difficult to navigate, many workers will end up buying more insurance than they need, resulting in up to a $2,000 unnecessary hit to their wallets each year. These suboptimal decisions are due to many factors:

  • the paradox of choice
  • having complicated options
  • dealing with information overload
  • struggling with the math
  • the employee’s own misleading psychological biases

Let’s examine each of these causes in more detail.

Paradox of choice

While allowing your employees to customize their benefits package is a good thing, presenting them with too many options can cause anxiety and decision paralysis, also known as the paradox of choice. A typical open enrollment generally includes multiple health insurance plans and a wide array of other perks like dental, vision, life, and disability coverage. Even though all of these benefits can help your employees, they’ll likely be overwhelmed by the sheer number of decisions that they have to make.

Having complicated options

To further muddy the decision making process, each benefit being offered comes with its own set of complicated terminology and fine print. This is problematic because most employees generally lack even a fundamental understanding of health insurance and benefits. In fact, only 14% of workers fully comprehend basic terms like deductible, copay, coinsurance, and out of pocket maximum. Since each insurance plan is comprised of hundreds of smaller details, it’s little wonder that employees struggle to truly make sense of it all.

Dealing with information overload

As if having too many complex decisions to make wasn’t enough of a challenge, your employees need to wade through an enormous amount of benefits information in a hurry. Whether they’re a new hire or going through open enrollment, they must read through several emails from HR & Benefits, decipher the fine print in multiple Summary Plan Descriptions, and learn how to navigate their benefits enrollment system within a very narrow timeframe. Chances are, many employees don’t even know where to start, causing them to feel extremely overwhelmed.

Struggling with the math

Even when employees understand their benefits options, that doesn’t necessarily mean that they’ll be able to choose the right coverage for their circumstances. They still need to gauge how much medical care they’ll need (their health risk) and how much that care will cost. In general, employees aren’t adept at assessing their future health care needs. And, even those that understand general insurance plan costs will likely be stymied by the fact that pricing for the same procedure can be all over the map. The bottom line? Workers can’t crunch the numbers if they don’t know what they’re tabulating and how each line item interrelates.

Psychology gets in the way

When employees attempt to predict their level of risk, they usually end up grossly overestimating their insurance needs. That’s because they envision worst-case scenarios as inevitabilities, even though statistically that’s not the case. As such, their desire to feel secure results in their buying too much insurance, which is essentially throwing their hard-earned money away.

And, when employees are overwhelmed, they want to get rid of their discomfort as soon as possible, which often leads them to make no choice at all (which is still a decision). They’ll either resign themselves to the default option or stick with the plan that they already have because it’s easier or it feels safe. According to Aflac, 9 out of 10 employees keep the same benefits year to year, despite there being more appropriate options available.

Final thoughts

Most of your employees are making costly errors when choosing their health insurance plans. They need a way to make sense of their options so that they can overcome this obstacle. That’s where decision support comes into play. Backed by artificial intelligence, effective decision support tools assemble and analyze health plan data in a way that people can’t.

These tools consider employee preferences, tabulate their probable level of risk using a large pool of data from people like them, and crunch the associated costs for each plan available. Then, they provide a plan recommendation that’s the optimal mix of cost effectiveness and risk protection. In short, they solve all of the problems discussed above so that employees can get the coverage that they need, while saving a substantial amount of money ($1,000 on average!).

Topics: Open Enrollment, Health Insurance, Consumer Directed Health


Written by Picwell