In most cases it simply is not accurate that a large chunk of what you pay in premiums or payroll deductions goes to insurance company profit or overhead. First, because it’s not true and second because your coverage is likely not insurance in any case because your employer plan is self-insured.
The real drivers of your premium costs are the price of health care services and the frequency and type of services used.
Here is an example. Of course, there are variables, but most coverage will be similar. The greatest variables and cost risk will be found in the individual market.
And yes, there are profits in some cases, but those profits overall are a small potion of premiums. When you hear about an insurance company earning billions in profit divide it by the number of policies in effect to see the impact on an individual.
In 2017, 89 cents of every premium dollar went directly to pay for our members’ medical care. Here’s a breakdown of how each of those 89 cents were spent:
Physician services (31 cents). These include all fees paid to doctors for a wide range of health care services. A few of the many are annual check-ups, preventive care (mammograms, cancer screenings, blood tests, etc.), surgery and recovery care and much more.
Outpatient costs (21 cents). From in-home nursing visits to post-operative evaluations, treating bone fractures to physical therapy, these costs were incurred for care at outpatient facilities (those that don’t involve an overnight stay). According to the New Jersey Health Care Quality Institute, outpatient spending in New Jersey – across all health care providers – rose higher than the national average.
Prescription drugs (20 cents). One of the fastest rising and most debated health care expenses, controlling prescription drug costs is a challenge for everyone involved in health care as they are rising faster than any other part of health spending.
Inpatient costs (17 cents). Hospital stays generate a myriad of expenses, and often include charges for surgeons and other specialists, nursing and a wide range of other hospital fees. These costs can be quite high for lengthy stays due to acute emergencies or chronic illnesses.
Now, what about expenses? For the individual market 2 cents goes to brokers. Three cents goes to state premium taxes and ACA fees and 6 cents is administrative expenses, including all salaries.