Consumer Education Initiatives in Financial and Health Literacy. Policy Context


The events of the last decade have underscored the challenges arising for consumers in both the financial and the health decision making areas. The recent economic crisis has strained the financial health of many households in the United States. Medical debt alone has contributed to bankruptcy:  In one study of individuals filing for bankruptcy, almost 60% indicated that medical bills contributed to bankruptcy (Himmelstein, Warren, Thorne, & Woolhander, 2005). It will take years for many of these households to recover. On the health front, consumers are currently facing greater responsibility for decision making with regard to both insurance coverage and treatment for health problems, and in these two arenas, the consequences of poor choices can be devastating.

These challenging times have created an increasing awareness that a lack of financial and health literacy can serve as a major barrier to the well-being of individuals, families, and communities. Usually in very separate venues, a number of agencies have attempted to improve financial and health literacy. One point of debate is how much of the burden of choice should fall to the consumers themselves, and how much is the responsibility of better government regulation and oversight by financial and health entities. That balance will continue to be an issue as legislation passes in these areas and as the regulations supporting that legislation obtain substance. For example, the DoddFrank Wall Street Reform and Consumer Protection Act includes a number of protections for consumers, such as a bureau of consumer protection, which ensures that consumers receive clear and accurate information relating to mortgages, credit cards, and other financial products, and protects consumers from hidden fees, abusive terms, and deceptive practices. The Credit CARD Act of 2009 is taking effect, and HHS is involved in formulating regulations related to the Affordable Care Act of 2010, some of which will affect insurance offerings and information for consumers about the benefits of various treatments.

Consumer education initiatives, related to both financial and health literacy, continue to be important. Resources, whether public or private, will be limited as the country comes out of a severe recession. Thus, efforts to expand consumer information and education in financial and health literacy will have to show their effectiveness and to find ways to provide services in the least costly manner. It is therefore critical to examine both what works to promote financial literacy and health literacy, and whether there are lessons to be learned across the two areas.

In some ways, the financial literacy and health literacy areas raise very similar concerns: Both address complex questions that require some sophistication; both are vitally important to the well-being of households; and both may result in incomplete and often contradictory information for consumers from a variety of sources. Health and financial literacy also overlap in terms of the costs of health care services and insurance. For example, consumers are often faced with deciding among insurance plans that require choice between greater and lesser risk of out-of-pocket spending, and planning for retirement increasingly requires individuals to recognize that they must plan for a substantial amount of spending on noncovered health-related services during retirement (both from acute and long-term-care spending). It is useful, therefore, to look at both areas for lessons that can help to determine where to direct scarce resources in the future.

Another key policy question arises regarding where to direct attention in order to enhance educational and informational initiatives. Should the focus be on individuals with low educational and financial resources, who are likely to be the least knowledgeable and most at risk? Alternatively, should greater emphasis be on empowering those who will be assertive in making decisions and hence be more likely to change? For example, in the area of health insurance choices, some have advocated that everyone can and should be educated about their options. Others believe that it is necessary to work with people at their current level of ability and interest. Some consumers will need help from family members or formal intermediaries to make decisions for them. Other consumers, who either already actively manage their health care or are likely to be able to manage their health care, may need limited assistance. Initiatives should emphasize empowering consumers on the basis of their needs and abilities. In the area of health insurance choices, some economists have argued that only a minority of consumers need to press for changes in order to influence the market to respond. For example, if enough people leave a high-cost health plan, some economists believe that the market will respond by creating lower cost plans. Not all people who leave do so by choice, and the consequences can be devastating: A study of uninsured children and children insured by Medicaid reported that a change in the program reducing the enrollment rate by 10% would increase the health care costs for each person by $2,121 for each child that was excluded from the program (Rimsza, Butler, & Johnson, 2007).

To begin understanding the lessons learned regarding financial literacy and health literacy, this report defines both terms and explains the reasons why financial literacy and health literacy are important to the well-being of low-income individuals.

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