Here's how to choose a health insurance plan that fits your budget and life

Choosing health insurance is complicated, and monthly premiums can add up. Understanding your needs and a plan's benefits can keep more money in your wallet.

Apr 20, 2022 - 21:06

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Here's how to choose a health insurance plan that fits your budget and life

Most Americans struggle to figure out which health insurance plan will save them money. It is a process that can be confusing, time-consuming and costly.

A study of almost 24,000 employees at a major Fortune 100 company found that 61% of them chose the wrong plan for their needs. The average employee could have saved an estimated $372 per year by choosing a different plan, according to the researchers at Carnegie Mellon University who conducted the study.

"The majority of employees chose plans that were more expensive, regardless of how much health care that they actually consumed the following year, and on average, the cost of these choices was about 2% of salary," Carnegie Mellon associate professor of economics Saurabh Bhargava, who authored the study, told CNBC.

In 2018, over 8% of Americans' total household spending went toward health-care costs. This represents about a 37% increase since 2004, up from 5.9% of total household spending.

Forty-six percent of Americans say it's difficult for them to pay the out-of-pocket costs for medical care not covered by their insurance, according to an October 2021 poll from the Kaiser Family Foundation.

"It seems like people aren't able to maximize their welfare because they're having trouble understanding the decision environment," said Anya Samek, associate professor of economics at the Rady School of Management at the University of California, San Diego.

One major issue in choosing a health-care plan is people don't understand the lingo insurance companies use to discuss each plan. Only about 1 in 3 people are able to correctly identify three common health insurance terms: premiums, copays and deductibles, according to Policygenius' 2020 Health Insurance Literacy Survey. This lack of understanding is negatively impacting the pockets of Americans.

Watch the video above to learn why Americans struggle to pick the most financially beneficial insurance plan for them and how to avoid leaving money on the table.

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