Financial Literacy and Consumer Choice of Health Insurance: Evidence from Low-income Populations in the United States

Abstract Under the Patient Protection and Affordable Care Act (ACA), many low-income consumers have become eligible for government support to buy health insurance. Whether these consumers are able to take advantage of the support and to make sound decisions about purchasing health insurance likely depends on their knowledge and skills in navigating complex financial products. This ability is frequently referred to as “financial literacy.” We examined the level and distribution of consumers' financial literacy across income groups, using 2012 data collected in the RAND American Life Panel, an internet panel representative of the US population. Low financial literacy was particularly prevalent among individuals with incomes between 100% and 400% of the federal poverty level, many of whom will be eligible for health insurance subsidies. In this group, people who are young, less educated, female, and have less income were more likely to have low financial literacy. Our findings suggest the need for targeted policies to support vulnerable consumers in making good choices for themselves, possibly above and beyond the support measures already part of the ACA.