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DaVinci on health care

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The Renaissance heralded a wide-ranging cultural rebirth. The period saw the invention of movable type, advances in architecture and medicine, the beginnings of what we know as modern diplomacy and much more. It also gave birth to the term “renaissance man.”

The ultimate Renaissance man may have been Leonardo DaVinci. Today, most know him as the painter of the Mona Lisa, but he was also a mathematician, an engineer, an architect, a musician, a cartographer and more. You might expect someone so accomplished to have embraced complexity, yet DaVinci believed that, “simplicity is the ultimate form of sophistication.”

The dog’s breakfast that is PPACA and its never-ending regulations (many apparently written in pencil on post-it notes so they are easily changed at a moment’s notice) has caused advisors to become nearly as multifaceted as DaVinci. In addition to the requisite people skills advisors have always needed, today’s successful advisor needs to be part lawyer, technician, accountant, interpreter and entrepreneur. In the process, we have, out of necessity, created and embraced a lot of complexity. As we strive to absorb the change around us, the challenge is to balance the requisite sophistication in our practices while tending to the more basic challenges that clients still face.

I thought of DaVinci’s admonition when I came across a disturbing study published in the Journal of Health Economics and headlined, “Many do not understand their insurance.” The disturbing – yet unsurprising – results point out how much “unsophisticated” work we have yet to do. The study gauged survey respondents’ ability to understand four concepts: deductible, copay, co-insurance and out-of-pocket- maximum.

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Despite the fact that many believed that they presented with a traditional plan of benefits that incorporated those four concepts, only 11 percent were able to compute the cost of a four-day hospital stay when given all of the information they should have needed to do so.

George Loewenstein, the health care economist at Carnegie Mellon University who conducted the study, believes, “It is difficult for people to understand because it is inherently complicated.” Professor Loewenstein’s conclusion is that, “The ACA deals with the problem of consumer misunderstanding by requiring insurance companies to publish standardized and simplified information about insurance plans, including what consumers would pay for four basic services. However, presenting simplified information about something that is inherently complex introduces a risk of smoothing over real complexities.”

See also: The doctor is out, stupid!

Loewenstein concludes that it would be better if insurance companies offered, “truly simplified insurance products that consumers are capable of understanding.” I remember hearing the same nonsense during the early 1980s when the Revenue Act of 1978 hastened the onset of 401(k) plans. There was much hand wringing about employees who, the experts reckoned, could never understand the complexities of such plans. Yet the inaugural class of CFPs (1973), and the first class of ChFCs (1982) were there to help employers and employees with complexity that far outpaces the four components in the Journal of Health Economics study. I think we came out OK on that one. According to the Investment Company Institute, as of 2012 there were 52 million Americans active in 515,000 401(k) plans.

The meaning I believe most advisors will take from the study is that our task is to emulate those early financial advisors. Our task is to help educate clients about the basic moving parts of their plans as well as how transparency and quality measurements work, and how to take advantage of their plans. The goal is to be the master who, like DaVinci, can be sophisticated in the best possible way.