How Health Literacy Can Help Reduce Health Care Costs

Health care can be complex and the choices your employees make can greatly impact what they pay. Strong personal health literacy helps them understand what their plan covers, choose in‑network providers, and make confident decisions that support their well‑being while managing costs. With health care expenses now a top economic concern for many Americans, even a small increase in knowledge can help employees anticipate bills, avoid unnecessary costs, and get the right care at the right time.

What Is Personal Health Literacy?

Personal health literacy is defined as your ability to find, understand, and use health information and services to make decisions for yourself and others. In other words, it’s not just knowing the facts, it’s putting them into action. The National Assessment of Adult Literacy breaks this into four levels of health literacy:

1. Proficient – People with proficient health literacy navigate the health care system more easily. They can evaluate options, follow medical guidance, and stick to treatment plans effectively.
2. Intermediate – Individuals can understand moderately complex health documents, pick out what matters, draw sound conclusions, and generally move through the health care system with confidence.
3. Basic – Individuals can use simple health materials like short articles and brochures but may struggle with more complex concepts and detailed treatment plans.
4. Below basic – Individuals have very limited literacy skills. They may only be able to find basic details on hospital forms or pamphlets, which is far below what’s needed to confidently navigate today’s health care system.

Personal health literacy is not medical training, it’s practical know‑how. It helps employees:

• Understand care instructions
• Ask the right questions
• Compare treatment options
• Navigate provider networks
• Use insurance benefits wisely
• Decide when and where to seek care

These skills support better health decisions and smarter spending.

How Can Personal Health Literacy Impact Health Care Spending?

Strong personal health literacy is also a powerful cost‑control tool. When employees understand key terms, know where to go for help, and can navigate the health system, they’re more likely to avoid unnecessary expenses, prevent avoidable care, and fully use the benefits already available to them. Here are a few ways better health literacy can directly lower health care spending:

• Choosing the right care setting – Emergency room visits are designed for true emergencies and carry the highest price tag, while urgent care, retail clinics, and telehealth often handle common issues more affordably. Strong health literacy helps employees choose the right setting for their symptoms, cutting unnecessary ER visits and avoidable costs.
• Understanding in-network- vs. out-of-network care – Even when employees pick the right type of care, costs can spike if the provider is out of network. It can mean much higher bills or no coverage. With stronger health literacy, employees are more likely to confirm network status, compare options, and avoid surprise charges.
• Understanding key insurance terminology and how health plans work – Many employees find insurance terms confusing, making it hard to budget for care. When they understand these basics and how in‑network versus out‑of‑network care affects costs, they can align their choices with the plan design, leading to more predictable expenses and smarter use of benefits.
• Managing prescription costs – Employees with higher health literacy are better at managing prescriptions. They understand directions, ask about generics and 90‑day fills, and compare pharmacy prices. This helps prevent medication errors and duplicate drugs, improves adherence, and reduces avoidable follow‑up costs.
• Using available preventative care – Most employer health plans include a wide range of preventive services at no additional cost to employees. When people are unaware of these benefits, they may skip routine care and delay screenings, which can lead to more serious and expensive issues later. Employees who understand and use their preventive benefits are more likely to stay healthy, catch problems early, and avoid higher-cost care down the road.
• Maximizing tax-advantaged savings accounts – Health savings accounts (HSAs) and flexible spending accounts (FSAs) can significantly lower health care costs by letting employees use pre‑tax dollars for eligible expenses. Yet many do not take full advantage simply because the rules feel confusing. With stronger health literacy, employees can understand the details, compare options, and use these accounts strategically to reduce taxable income and out‑of‑pocket costs.
• Leveraging employer-sponsored wellness programs and support resources –Benefits like employee assistance programs, wellness incentives, and care navigation services provide extra financial, emotional, and preventive support. Yet many employees miss out due to low awareness or confusion about eligibility. With stronger health literacy, they can recognize the value of these programs, access them confidently, and get more from the benefits you already offer.
• Communicating with health care providers effectively – When employees know how to ask clear questions, understand instructions, and follow treatment plans, they face fewer complications, repeat visits, and unnecessary tests. Strong communication with providers helps them spot issues early, get the right level of care the first time, and ultimately lower overall health costs while improving outcomes.

Conclusion

Improving personal health literacy is a powerful way for employees to take control of their health and their costs. Even small gains like understanding key terms, care options, medications, or preventive services can lead to more confident decisions and meaningful savings. Download the bulletin for more details.