And the survey of more than 2,000 insurance consumers found that despite that overconfidence about terms relating to out-of-pocket costs, half the population said it is only "somewhat confident" in their ability to select the right health insurance plan for their needs — with 12 percent of them saying they are not confident "at all."
Jennifer Fitzgerald, CEO and co-founder of PolicyGenius, said the findings — which come as millions of Americans prepare to sign up for 2017 health coverage — are sobering because they put consumers at a big potential financial disadvantage from picking the wrong insurance plan, or not understanding their exposure to charges when they seek treatment.
"The most significant result is a very high bill that you weren't expecting," said Fitzgerald, whose digital company helps consumers compare different types of insurance and provides guidance on which plans to pick.
"If you don't understand how a deductible works, how coinsurance works ... [when] you come in for a procedure or a lab test, those are the kinds of things that can result in a bill for $1,000 or $2,000," she said.
Fitzgerald, whose company has just launched its first purchasing decision-making app for health insurance buyers, said it's not surprising that many people don't know the definitions of certain insurance terms, or are not completely confident in their ability to pick the right health plan.
"It's quite possibly one of the most complicated decisions anyone would have to ever encounter," she said.
In recent years, a growing number of insurance plans have increased the out-of-pocket responsibilities of consumers in an effort to control the price of premiums.
As part of that trend, plan designs have become increasingly complicated, with different co-pay or co-insurance levels for different kinds of services, in the plan's network of providers and outside the network, and for different types of drugs.
But even Fitzgerald, who as a McKinsey consultant worked with major health insurers to improve engagement with their customers, said she didn't expect that only 4 percent of Americans would be able to correctly define all four terms related to out-of-pocket liability.
"I wouldn't have been surprised at 10 to 20 percent," she said. "Four percent was surprising."
She noted that only 42 percent of people were able to correctly define the term out-of-pocket maximum, despite 67 percent saying the thought they definitely understood it. Ironically, the term's definition is almost literally its name: the maximum total amount a person would have to pay out of their pocket during a year for health services.