We all know Goldilocks and the Three Bears – the classic story of a little girl who breaks into the house of a family of bears and tries out whatever she can find. But Goldilocks isn’t satisfied with any old possessions, she seeks out the items that suit her best. And she will not stop – or in her case, fall asleep – until she finds ones that are just right. Goldilocks’ behavior is a great example of a term we like to use in the insurance business known as “right-sizing.” Here are a few tips to help your employees find the right fit when it comes to their health insurance options.
Make sure the health plans you offer are different enough that they offer your employees real choice
Many well-intentioned employers try to offer choice, but end up offering different health plan options that are essentially the same from a design and contribution perspective. How do you make sure you are offering real health plan choice? Look beyond premiums, deductibles, and out-of-pocket maximums, and compare other features of the plan that drive value for your employees. Some of these features include:
- The cost-sharing structure of each health plan: How the health insurance company and the employee will share responsibility for the cost of medical services during the plan year is an important factor in determining the true cost of a medical plan. It is important to look at how the deductible, copay, and coinsurance structures compare, but also how they are put into effect within a given plan. For example, if every service (e.g., office visits, retail pharmacy, etc.) has a copay and is not subject to the deductible, then the deductible becomes virtually irrelevant.
- The size of provider network: Provider network size is important because it can influence cost. For example, a plan with a narrow network may be less expensive than a plan with similar benefits but a larger network
- Degree of utilization controls: This refers to whether a plan requires a referral or pre-authorization to access certain health care services. For example, you might need a referral for a specialist office visit or a preauthorization for diagnostic imaging.
Offer enough - but not too much - employee medical plan choice
In a behavioral economics study done by the Harvard Business Review, researchers looked at how individuals handled choice when buying gourmet jams at a food market. One day, shoppers were presented with a display table with 24 varieties of gourmet jam. On another day, shoppers saw a similar table, except that only six varieties of the jam were on display. The large display attracted more interest than the small one. But when the time came to purchase, people who saw the large display were one-tenth as likely to buy as people who saw the small display.1
This phenomenon, known as “choice paralysis,” is goes against how many of us think about choice. We tend to believe that the more options we have, the better off we will be – but this isn’t necessarily true. Beyond a certain point, more options just become overwhelming and make people feel dissatisfied with their choice, even if they’ve made a good one.
So how many employee health plans should you offer?
As with most things, the answer to this question will depend on your company and your employees. However, we believe that offering three or four health plans is generally the sweet spot. If you offer fewer than three plans, some of your employees may struggle to find one that works for them, but if you offer too many plans, the options could become overwhelming. And, as you’ll remember, Goldilocks always had three options to choose from and she found one that was just right.
1Harvard Business Review, Sheena Iyengar and Mark Lepper, https://hbr.org/2006/06/more-isnt-always-better