Your Employees Don't Understand Their Benefits

Executive Summary: Only 12% of Americans have proficient health literacy. The remaining 88% cannot reliably calculate out-of-pocket costs, compare plan options, or understand basic insurance documents. Low health literacy costs the U.S. economy $106-238 billion annually, with 50% higher hospitalization rates and longer hospital stays. For self-funded employers, this directly increases claims costs. Employees don’t know they can shop for care (hospital MRI: $2,500 vs. imaging center: $500), misunderstand plan differences, skip preventive care, and accept medical bills without questioning errors. Solutions: year-round education beyond open enrollment, decision-support tools, benefits literacy programs, and transparent communication about how to use coverage effectively.

Your employees don’t understand their health benefits. They don’t know the difference between an HSA and FSA. They don’t know that an MRI at a hospital costs five times what it costs at a freestanding imaging center. They don’t know that choosing the wrong plan during open enrollment could cost them thousands.

This isn’t speculation. According to the National Assessment of Adult Literacy, only 12% of Americans have proficient health literacy. The other 88% can’t reliably calculate their out-of-pocket costs, compare plan options, or understand basic insurance documents.

And employers are paying for it.

The scope of the problem

Healthcare is complicated. Insurance plans use terms like deductible, coinsurance, and out-of-pocket maximum that sound similar but mean different things. Billing involves thousands of codes most people have never seen. Nobody teaches this in school.

The result: employees make expensive mistakes. A University of Connecticut analysis estimated that low health literacy costs the U.S. economy between $106 billion and $238 billion annually. People with low health literacy have a 50% higher chance of hospitalization and hospital stays that average two days longer.

For employers, this translates directly to higher claims costs. Self-funded employers bear the full financial impact of every healthcare decision their employees make.

What employees don’t know

They can shop for care

Most employees don’t realize medical procedures have wildly different prices depending on where you go. An MRI at a hospital might cost $2,500. The same scan at a freestanding imaging center might cost $500. Same machine, same quality, five times the price difference.

When employees default to whatever their doctor recommends without asking about alternatives, costs go up for everyone.

Site of care matters more than they think

An ER visit for a non-emergency condition costs $1,200 to $2,000 on average. The same treatment at urgent care costs $100 to $200. That’s a 10x difference for similar care.

Employees go to the ER because they don’t know the alternatives. They don’t know what qualifies as “urgent” versus “emergency.” So they default to the most expensive option.

According to UnitedHealthcare, the median ER visit costs $1,700 compared to $165 for urgent care. That’s a $1,500 difference per visit.

Quality varies dramatically

Not all hospitals are equally safe. CMS publishes star ratings. Leapfrog publishes safety grades from A to F. A surgeon with a 2% complication rate versus 8% matters. An infection rate of 0.5% versus 3% matters.

But employees rarely check these ratings before choosing where to get care. Most don’t know these ratings exist.

The benefits confusion problem

A Businessolver survey found that 86% of employees are confused about their benefits. That number hasn’t changed in seven years.

Here’s what makes it worse: a Guardian Insurance study found that 80% of workers said they understood their benefits, but when tested on their actual knowledge, only 49% did. People think they understand more than they do.

This gap shows up in participation rates. A Payroll Integrations survey found that employees who feel informed about their benefits participate at significantly higher rates. For HSAs specifically, there was a 15% participation rate among uninformed employees versus 44% among informed ones.

When employees don’t understand HSAs, they leave money on the table. When they don’t understand their plan options, they pick the wrong coverage. When they don’t understand preventive care, they skip screenings that catch problems early.

What this costs employers

Healthcare costs for employers are projected to rise 5.8% to 9% in 2025, depending on the survey. Mercer, Aon, and Business Group on Health all show similar numbers. This is the third consecutive year of cost increases above 5%, following a decade of increases averaging around 3%.

Not all of that is preventable. But a meaningful portion comes from avoidable decisions:

Wrong site of care. ER visits for conditions that urgent care or telehealth could handle.

Poor plan selection. Employees on plans that don’t match their healthcare needs, either overpaying in premiums or getting hit with unexpected out-of-pocket costs.

Missed preventive care. Skipping covered screenings that catch problems when they’re cheaper to treat.

Underused benefits. HSA contributions that go unclaimed, wellness programs that go unused, navigation tools that go untouched.

The Devenir HSA Research Report found that 21% of all HSA accounts are unfunded. Among employer-affiliated HSAs, 13% have zero balance. That’s employer contributions sitting unused because employees don’t understand how to use them.

Average HSA contributions are well below the maximum allowed. EBRI data shows average combined contributions of $2,724 against a statutory maximum of $4,150 for individuals and $8,300 for families. Employees are leaving tax-advantaged savings on the table.

What employers can do

Provide answers when employees need them

Employees have benefits questions at inconvenient times. Late at night. During open enrollment when they’re overwhelmed. When they’re sick and trying to figure out where to go.

“What’s the difference between HSA and FSA?” “Should I go to the ER or urgent care for this?” “Which plan makes sense given my situation?”

These aren’t complicated questions. They have clear answers. But employees don’t have anywhere to get those answers at 10pm on a Tuesday when they’re trying to make a decision.

Make open enrollment less overwhelming

Open enrollment is when most bad decisions happen. Employees are deadline-pressured, confused, and defaulting to whatever they had last year.

A PDF benefits guide doesn’t solve this. A 90-minute webinar that nobody remembers doesn’t solve this. What helps is structured guidance that employees can access in the moment when they have specific questions.

Businessolver found that employees are more than twice as likely to enroll in a cost-effective HDHP with HSA when they have access to decision support. They’re three times more likely to elect voluntary benefits. Education changes behavior.

Surface cost and quality information

Price transparency regulations now require hospitals to publish pricing data. CMS publishes quality ratings. This information exists, but employees don’t know where to find it or how to use it.

Making this information accessible and actionable can change how employees make care decisions. Which providers are in-network? What does this procedure cost at different facilities? How do hospitals rank on safety and outcomes?

Track what’s working

Without data, you can’t tell if education efforts are making a difference. Track where employees are getting care. Track preventive care completion rates. Track HSA utilization. Track whether benefits questions are going to HR or being answered elsewhere.

The bottom line

Health literacy isn’t going to improve overnight. Healthcare isn’t suddenly going to become simple. But employers can provide tools and education that meet employees where they are.

The companies that do this well will see lower claims costs from better care decisions, higher benefits satisfaction, better utilization of preventive care, and less time spent by HR answering the same questions repeatedly.

The companies that don’t will keep paying for employee confusion.

What we’re building

OrbDoc Benefits AI helps employees understand their benefits through conversation. Ask about HSA versus FSA and get a clear comparison. Ask where to go for a minor injury and get guidance on ER versus urgent care versus telehealth.

It’s not a chatbot that makes things up. It’s deterministic answers based on IRS rules and published healthcare data. The numbers are real. The guidance is accurate.

Processing happens in the browser. We don’t see salary numbers, plan selections, or health information. Privacy isn’t a feature we added. It’s how we built it.

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Sources

OrbDoc builds tools to help employees understand their benefits and patients understand their medical bills. Learn about Bill Analyzer →