Is vision insurance a scam?

the weird, verticalized world of vision "insurance"

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Is vision insurance a scam?

Yes.

Thinkboi out,

Nikhil aka. “Short and sweet”

Haha you got’em Nikhil you’re so funny and cool. But what’s the actual answer?

Scam might be a strong word, but I think it’s misleading and propagates a ton of market distortions.

Let’s start by talking about what vision insurance is. You should think of vision insurance like a prepaid coupon book. You or your employer pays ~$5-30 per month per person. In return:

  • You get low/no-copay visits for an annual eye exam. This exam checks for eye issues, examines your retina, and checks your vision for blurriness or changes. If there’s an actual medical issue like glaucoma, you’ll usually end up switching over to your medical insurance and seeing an ophthalmologist.  But…your medical insurance doesn’t normally cover the annual eye exam…unless you have a diagnosed issue already and are getting a checkup for the issue....like what are we even doing here?
  • You get discounts or subsidies to buy the glasses frames. These subsidies change depending on the manufacturer of the frame.
  • You get discounts on the lenses and the different lens enhancements (e.g. anti-glare coating, extra thicccc lenses for people like me with particularly bad vision). Depending on the enhancements, you might pay some out-of-pocket as well.
  • You get a contact lens fitting appointment covered. (Yes, this is different for some reason.) For contact lenses themselves, there seems to be different coverage depending on if they’re medically necessary or cosmetic. For the former, coverage will be similar to the frames but for cosmetics you’ll get a certain dollar “allowance” per year for contacts. Like you’re a little child that’s done their chores.
  • Each plan seems to have different levels of allowance for sunglasses and non-prescription glasses (e.g. blue light glasses).

Here’s an example of what a vision plan looks like to see this in practice at an employer. And here’s what it looks like for individuals getting a supplemental plan in California.


So why do I think vision insurance is “scam-esque”?

Issue 1: The verticalization and consolidation

I think the biggest distortion in the market is the fact that eyeglasses manufacturers, retailers, and vision insurance are fully verticalized under a single company. This is not a secret, it’s literally a part of the investor presentation for EssilorLuxottica. VSP, which is one of the largest vision insurance companies, seems to be following suit by opening brick-and-mortar locations and acquiring Visionworks, an optical chain. They also have VSP Optics which makes the lenses, and own Marchon Eyewear which has the licenses/ownership over brands like Oliver People’s, Burberry, Ray-Ban, etc.

Source: EssilorLuxottica with a little flair from me

There are three problems with this verticalization. The first is that the company setting the price of the lenses/frames are the same ones selling you a discount. If I make the glasses and list them at $1,000, then tell you that buying my vision insurance product for $5 a month will get you $150 off, you’re not ACTUALLY getting a discount. You just think you are because they decided the initial price!

The second is that you can create incentives behind the scenes to push people to your own products. For example, this article talks about how the vision plans reimburse pretty low for the eye exam and then give bigger bonuses if the optometrist sells certain brands of glasses.

“They want to do right by patients. At the same time, they’re mindful that steering customers to particular frames can result in larger reimbursements — which the patient likely isn’t aware of.

“It’s been like this for a long time,” said Norm Steinberg, owner of City Eyes Optometry in Sherman Oaks. “The plans want people to buy their own frames.”

He said the plans often shortchange optometrists in reimbursing for eye exams, with payments as low as $50. This keeps optometrists focused on sales of high-priced frames and lenses to cover overhead and meet expenses.”

-
LA Times

That optometrist told me I looked cute in my glasses and I believed them! They were just getting paid more for that frame, I’ve been looking like a fugly idiot this entire time!!! This has now become personal.

The third is you can essentially use administrative burden to add friction to see anyone that’s outside your network. Yes, you can technically go to anyone out-of-network. But to submit a claim, you need to create an account, file a claim with a bunch of details, send a receipt, and then wait 3+ weeks. All the while the vision plan tells you that if you use one of their providers, you don’t need to do that (like, literally on the same page they’re telling you that). This isn’t that different from other insurance, but that doesn’t mean it doesn’t suck.

In fact, if vision was actually insurance then it would incentivize you to go to the lower cost service provider by lowering the administrative burden. Instead, it’s harder to buy $15 glasses on Zenni and get reimbursed than $130 glasses on glasses.com (owned by, you guessed it, EssilorLuxottica).

All of the above is made worse by the fact that essentially two players own the entire market, which can then pressure everyone else in the value chain to do what they want.

Source: Company Websites, Earnest Research

Issue  2: Cost and utilization

When you realize that vision insurance is actually a prepaid discount book, it’s also worth thinking about whether it’s even a good deal.

For one, the discounts expire at the end of the year. So how many people actually use the coupons they’re paying for? About 72% of people surveyed had vision insurance, but 63% of those people hadn’t completed a vision exam in over 3 years.

A friend sent me data from an internal report (left) and I ran a quick and dirty analysis myself off this VSP claims dataset that lines up pretty closely.

I’d be very curious how many people are buying new glasses each year to make this worthwhile. Remember, you’re already paying $120-240 a year to use these benefits, so you better be using more than that in discounts per year. My guess is that most people don’t.

In fact, if you were to go completely cash for the vision exam alone then a remote visit to renew a prescription is $15-25 and a comprehensive eye exam is $85-95 (both at Warby Parker). And then Walmart + Costco have a ton of frames even by designer brands, where the same exact frame will be 40%+ more expensive at a retailer the vision insurance company owns! Here’s an example with the same exact Michael Kors frame going for $72 at Walmart and then $144 at EssilorLuxottica-owned Lenscrafters. You can get glasses on Zenni for $15, which is cheaper than the premiums you’re paying.

In order to make vision insurance worthwhile you have to actually get your eye exam and/or be getting at least one pair of glasses per year (or contacts) that’s a relatively high end designer brand. Or have a family who all need glasses and vision checks every year. Even then it still doesn’t seem like a great deal vs. using an HSA that has a triple tax advantage and can be used for all of this.

So it’s not that it’s definitely not worth it. It’s that you need to actually do some calculations to figure out if it is, the vision insurance kind of deceives you around what things cost since they set the prices, and you actually have to remember to use it.

Issues 3: The Employer and Broker Distortion

Despite lambasting vision insurance for the last thousand words I buy it almost every time it’s available. Because I’m kind of a fraud and only talk that shit.

But also because when it’s available through my employer, I’m usually paying very little of the monthly amounts (usually it’s something like $1-3 per paycheck). I suspect one of the reasons vision insurance doesn’t really get that much pushback is because it doesn’t “feel” like that much money to any specific entity.

Larger companies offer it because employees now expect it and some stupid vision insurance funded research probably came out talking about how it increases retention to offer it as a benefit (spoiler alert: any time employees want a benefit they would actually prefer it in higher wages). For large companies, vision insurance is probably one of the smallest line items for health benefits that people would get annoyed about if they were removed. And now every company feels the need to have it because the other companies do.

The smaller the company, the less the employer covers, and the more math you do to figure out if it’s worthwhile. I couldn’t find data on how many self-employed people get vision insurance, but I suspect it’s low.

Source: KFF Employer Benefits Survey 2019

I think one of the big offenders here are benefits brokers, who are typically the ones that advise these employers and help them pick carriers. The issue is that the brokers get commissions from vision insurance carriers when they sell plans, so benefits brokers are hugely incented to offer this to their clients even if it’s not super useful.

For example, you can see in the EyeMed broker page that they give 10% of new and renewal commissions to brokers selling to individuals. This Word & Brown brochure suggests it stays at 10% for brokers selling to large groups. So if a 3,000 person company buys a $300/year vision plan for employees, the broker gets $90,000. Of course they’re going to tell the employer that a vision plan is worth getting!

Just remember, if your employer is covering this, it ultimately comes out of YOUR paycheck.

Issue 4: Coverage and the Eye Exam

When you hear the word insurance, you might think “a financial product that protects you against catastrophes”. Well too bad you stupid idiot, that’s not what insurance means in vision insurance. When I asked a few people about vision insurance, they were surprised to find out that it doesn’t cover serious eye issues. They probably didn’t read the fine print, since…

But I think this is the issue with having “insurance” in the name. Any serious issues like glaucoma, etc. found in the routine vision exam get referred to an ophthalmologist and then gets covered by medical insurance. How many people who have vision insurance know that?

Which I think raises an ideological question about the eye exam and its entanglement with vision insurance. What’s the purpose of the eye exam? Is it to screen for disease or is it for finding good glasses?

If it’s to screen for disease, then why isn't it included in medical insurance? The Affordable Care Act outlines preventive care and essential health benefits that health insurance plans must cover. For kids that includes the comprehensive eye exam, but not adults or seniors on Medicare?

The eye exam seems vitally important - correcting vision early is important for kids' development, can catch serious issues like diabetic retinopathy early, etc. I really can’t understand how this coverage isn’t mandated by the government and how it got carved out from health insurance. Either somehow optometry groups and insurance agreed to not cross this line, or the prevalence of eye issues means health insurers found a way to get out of covering this.

It’s understandable why someone would think that the insurance company paying for the screening exam to avoid higher risk eye issues would be the same insurance company that would cover said higher risk eye issues if they were caught. And yet they aren’t! This feels misleading!

If the point of the eye exam is to get the right glasses, then should patients be allowed to get glasses without prescriptions and just assume the risk themselves, even if they have an old prescription?* Or let opticians write those prescriptions themselves? This is an area where patients actually know what good outcomes feel like and can assess that themselves.

Right now your prescription expires after 1-2 years and you have no choice but to get another vision check, even if your glasses feel completely fine. For a long time, you’d have to go in-person to get this check, which introduces all the frictions of access to care (available optometrists, distance to them, needing to take off work, etc.). It also has the nice benefit of dilating your eyes so you feel like the sunlight is piercing through your skull and you need to read things boomerily close to your face for the next 6 hours.

This has been a big battle tech companies like Visibly (fka Opternative) have been fighting against lobbying groups like the AOA to enable telemedicine prescription renewal at home. After 6 years, they finally got FDA approval to use a smartphone + ophthalmologist asynchronously to do a visual acuity test at-home and renew prescriptions.

It feels like vision insurance companies lean heavily into eye health and screening in their marketing - it’s front and center for VSP and EyeMed materials. I suspect the general concept of “insurance for eye health” is one of the reasons a lot of people choose to get vision insurance if it’s available without understanding the extent of coverage.

[It actually seems like you can TECHNICALLY get glasses without a prescription as long as you have the numbers that are normally in the prescription? For example this company EyeQue seems to give a home device that you can use to self-diagnose and get the same numbers that are in a prescription (though very clearly calls it “Eyeglass numbers” and not “prescription”). And then certain online glasses makers like RxSafety will send you the glasses with just those numbers. I’m still somewhat unclear on the legality here and if you can get a legit prescription renewal via telemedicine nowadays for $15, this seems like it’s not worth it.]

The impact of tech + parting thoughts

Long story short - I think vision insurance is misrepresented to patients to make it seem like a good deal. How many of you learned about these aspects of vision insurance from reading the post? And you’re healthcare people!

I think three changes could help this a bit:

  1. The vision exam is important, and I’m annoyed it’s getting wrapped up in the rest of this. IMO put it under medical coverage for everyone.
  2. Stop allowing vision insurance to use “insurance” in the name.
  3. Disallow brokers to get commissions from vision carriers (which is a longer conversation, but already starting).

It won’t fix the market overnight, but I think it’ll iron out many of the big problems.

Some final thoughts:

  • Each state has different rules around what needs to be included in the prescription, who can dispense the prescription, how long it’s valid for, whether it can be renewed with an online test, etc. I’ve had friends tell me they’ve VPN’d into another state just to take the online prescription exam smh. This feels like an area where the standards should be nationalized, the state by state differences seems to only benefit lobbying groups.
  • Speaking of lobbying groups, until recently, it used to be legal for optometrists to not give you your prescription to buy glasses elsewhere. Even after that, many optometrists wouldn’t give the pupillary distance (a measure of how far apart your eyes are) which wasn’t in the prescription but needed to buy glasses online. In order to combat this, many online glasses companies had this janky ass workflow where you put a credit card near your face and it would measure your pupillary distance using a phone camera. Don’t worry about all the OnlyFans charges you see on your next bill, it’s probably a coincidence.

People are worried about social media companies mining their data while literally putting their credit card to their face and sending it to a random person. Okay.

  • I’d be interested if we end up seeing more deregulation in this slice of healthcare. Very recently we saw the passing of legislation that allowed the sale of over-the-counter hearing aids for mild-moderate hearing issues. Maybe we’ll see the same for over-the-counter prescription glasses. This currently exists for reading glasses, but not for people with nearsightedness (which tends to need more customization per eye + deal with things like astigmatism).
  • Lil’ Wayne once said “hit ‘em with a glock, put ‘em in a coma, now what that boy got? Glau-coma (haha)” and it was my first time I’d ever heard the word glaucoma so I thought it was sick. But now as an adult I know that doesn’t cause glaucoma.
  • Vision seems to be an area where tech has actually made significant inroads. Warby Parker utilized e-commerce for the home try-on function + built a brand that you’d pay for out-of-pocket even without vision insurance to cover it. At-home prescription renewals using your phone have received the FDA’s blessing. And retina scans have been the first foray for many healthcare ML models to detect things like diabetic retinopathy, cardiovascular risk, etc. Some stores will actually use an on-site technician + telemedicine optometrist to do the comprehensive screening. It feels like eventually, you’ll either be able to do this completely at home with an AI + telemedicine walkthrough, or at the very least go to your PCP/pharmacy and do this test with a medical assistant or trained technician.
  • Using these new tech developments makes me think you can build a new vision insurer with a different cost structure from the ground up. Telemedicine prescription renewal, at-home try-on for frames, easy reimbursement for any out-of-network claim, manufacturer agnostic, in-person eye exams via pop up clinics, etc. XP Health seems to be trying some portions of this?

I expect to see a VSP red dot on my chest after posting this. Which is fine, I’m willing to die on this hill.

Thinkboi out,

Nikhil aka. “shortsighted short king spring, right?”

Twitter: @nikillinit

IG: @outofpockethealth

Other posts: outofpocket.health/posts

Thanks to Marc Albanese and David Gaines for reading drafts of this

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