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Understanding how Healthcare Insurers Deal with Cognitive Dissonance

Posted Oct 22 2008 6:27pm

I was recently engaged in a conversation with health insurance brokers on another blog who were discussing the cost of insurance. I made the point that one group struggling under the burden of high health insurance costs are people purchasing policies on their own, i.e., they do not work for an employer who offers them coverage. I mentioned a January 08 Consumer Reports investigative report "On Their Own: Far from a remedy, insurance for individuals is a world of pain." Here's a quote from Reuters about it:

Consumer Reports' yearlong investigation into health insurance explains the huge hurdles that consumers, including healthy people with minor ailments, face when they try to acquire health insurance on their own. According to research cited in the report, 89 percent of people who looked into buying individual insurance had not bought it because it was too costly, they were turned down for health reasons, or it provided inadequate benefits.

The report [is] available online at where CR maintains a health insurance hub for consumers. The report is the third in a series on America's health care crisis.

One person responded:

That's odd. I rarely have problems placing (individual major medical) business, especially with "healthy" clients. I may have 2% rejected for coverage, and usually that is because the applicant failed to provide me with full disclosure.

89% huh?

Must have polled those folks who think health care, and health insurance should be free like it is in other countries.

Perhaps Consumer Reports should stick to reporting on appliances & cars. I have yet to see an accurate report on the insurance industry from those folks.

Another chimed in:

Notice that 2 of the 3 criteria are 100% subjective. Too costly? I have employees that won't take a group plan because of the $20 a month left after the employer contribution. Inadequate benefits? I think many times that perception is held by people that don't do the math…

And a third said:

Believe me, no one is more aware than I as to the various tradeoffs in various types of employment.

In 2002, I (1.) ran my own business, and sold it to someone else in February of that year. Between then and when I got hired where I work now, I (2.) worked for another company that laid me off after 7 months, (3.) collected unemployment, (4.) worked as an independent contractor for my uncle, and (5.) delivered pizzas, and was therefore a tipped employee. Throw in the home office deduction and two kids, and I was my accountant's nightmare that year. Made out like a bandit, though.

To that, I replied:

I'm not clear on the point you're all making.

Using your logic, you would conclude that a small business owner with revenue of $50K/year who pays $12K for a family policy shouldn't complain about it because:

  • Consumer Reports cannot report accurately about health insurance;
  • Only people who think insurance should be free complain about its cost;
  • Arguing that 25% of revenue is too much to spend on health insurance (without dental coverage, and with substantial copays and deductibles) is a subjective judgment and thus is not valid;
  • A few employees in other companies refuse to pay $20/month for insurance, which means you can't trust the judgment of any employees since they don't do the math; and
  • There are trade-offs, but anyone in that situation should be able to make out like bandit if they were smart enough.

Is that the argument you're making?

The reply to each part of my question was a resounding YES!

The conversation above gives profound insight into the thoughts and feelings of (at least some) people working in the in health insurance industry. What may seem to some to be their insensitivity to the plight of others less fortunate, their attitudes reflect a perception that health insurance is a good thing because it enables many people to obtain the care they need. But when confronted with information about the down-side of health insurance they experience cognitive dissonance, which is an uncomfortable tension caused when one holds conflicting beliefs at the same time. One such shortcoming is the toll high insurance cost has on individuals who need care, but can't afford it; as well as businesses that can't offer insurance to their employees and remain profitable.

There are different ways people attempt to deal with cognitive dissonance. For example, when they are unable to avoid information that challenges their beliefs, they try to invalidate or dismiss the conflicting information--and do it any way they can. It's a natural human tendency for humans to lessen their cognitive dissonance by justifying their position through knowledge-defeating tactics, such as:

  • Self-deception (convincing oneself that one's beliefs are valid despite strong evidence to the contrary)
  • Selective attention (simply ignoring conflicting information)
  • "Killing the messenger" (close-mindedly attacking those with alternate viewpoints)
  • Overconfidence (maintaining that one's beliefs are valid even though they are based on insufficient and misleading information)
  • Wishful thinking (pretending everything is/will be just fine, so there's no need to change the situation).

Of course, a more rational thing to do is to put yourself in the shoes of those with opposing views, and attempt with an open mind to understand why your perceptions are being challenged. People who are wise would then use this valuable information to expand their knowledge and understanding. When the conflicting information threatens one's finances and/or ego (self-image), however, it can be very difficult to cope with cognitive dissonance this mature way. And that seems to be what has happened with the conversation above. Consider the following:

  • There is no obvious evidence to validate the assertion that a reputable source such as Consumer Reports is providing false information.
  • There's no information offered by which to validate the claim that the only people complaining about the cost of insurance are those who think it should be free.
  • It's irrational to say that a person's assessment of what's "too much" to spend on health insurance (or anything else for that matter) is invalid just because it's their personal view (after all, aren't all views subjective to some degree!).
  • It's unreasonable to conclude that the judgment of all employees is unreasonable if only a few don't want to spend $20/month on insurance.
  • There's no concrete evidence that a person unable to afford health insurance is unintelligent.

All this says to me that the U.S. health insurance is under attack by people who believe it's a faulty system that's unfair to large groups of individuals. Yet those who earn a living in that industry naturally want to believe they are providing a valuable service that benefits others (as well as themselves); and many millions of Americans are being served by that system. This conflict in their thinking creates cognitive dissonance. To relieve this uncomfortable tension, they are prone to defend their profession, which is certainly understandable.

Making irrational, inaccurate or unsubstantiated claims about those who attack their livelihood, however, is not helpful at finding a solution. But what can you expect? It's just human nature!

Note, however, that while I'm saying consumers' opinions about our current healthcare system ought to be taken seriously, I'm not saying that they're always correct in their perceptions ... and neither is Consumer Reports. In their March 2008 edition of Consumer Reports, a survey of 1,200 Americans, 18 and older, asked what a reformed healthcare system should guarantee. Over 80 percent said it should include:

  • Coverage for all uninsured children
  • Protection against financial ruin due to a major illness or accident.
  • The ability to obtain coverage regardless of a pre-existing condition.
  • Coverage that continues even when people are laid off, changing jobs, or starting their own business.
  • Premiums, deductibles, and out-of-pocket expenses that are affordable relative to family income.
  • The ability of people to keep their current health insurance if they choose.

I don't see anything unreasonable about these requests.

But when asked who they believe is responsible for the high cost of American healthcare today, the same respondents tended to blame drug and insurance companies, even though Consumer Reports noted that hospitals and doctors account for the greatest share of all healthcare spending (52 percent in 2006). Drug companies account for only one tenth of expenditures, while the insurance industry consumes 12 percent of private insurance premiums (on administrative overhead, marketing and profits).

By the way, they also reported that healthcare consumers' "modifiable" risk factors--such as overeating, exercising too little, and smoking--are to blame for an estimated 25 percent of all healthcare costs.

Sounds like an objective report to me.

Bottom line: For those without healthcare insurance, and for those who struggle financially due to its high cost, there is a serious problem with the current system! One way to remedy the problem is to tie insurance premiums and related expenses to family income by offering subsidies to those in need. This can be accomplished, for example, by offering universal coverage (with or without the option for private insurance). At the same time, delivering high-value (cost-effective) care is absolutely essential in controlling costs, even though we are a long way from making that a reality due to such things as the knowledge void and a payment system that rewards quantity instead of quality. Examining and debating these problems and potential solutions with open minds are productive activities, but we all ought to refrain from reducing their cognitive dissonance through knowledge defeating tactics, since itonly undermines our progress.

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