Where Do Your Medical Insurance Premiums Go?
Posted on Wed, Jun 02, 2010
According to Anthem Blue Cross, 87 cents of every medical insurance premium dollar they receive from their members goes towards covering medical care and services that members receive, like doctor visits, hospital costs, prescription drugs, and more. When costs for these services go up, Anthem's medical insurance premiums must go up (current Anthem Blue Cross medical insurance rates). 10 cents of every premium dollar goes towards services they provide for their members, such as claims processing, enrollment and billing services, provider credentialing and complying with government regulations.
The 3 cents of the premium dollar that is left is profit.
3 cents of every dollar! To put that into perspective, if you combine the annual profits of the top 10 medical insurance providers in America, that would be equal to just 2 days worth of national medical care expenditures!
Why are medical care expenditures and medical insurance premiums so high? Technology is the key force behind medical care spending, accounting for an estimated 2/3 of spending growth. After that comes inflation. What we spend for the same medical services we had received years ago is a lot more expensive today, driving 51% of the growth in medical care spending. Next comes cost shifting. Cost shifting is what happens when government programs like Medicaid and Medicare underpay for medical services that patients receive. Medical insurance companies have to pay for this shortfall. In 2008, an independent medical research firm estimated that the total annual cost shift from Medicare and Medicaid to private medical insurance companies is more than $88 billion! To break it down even further, for a typical family of four, that represents an additional $1,788 in annual medical care costs due to cost shifting. Next is government compliance. Medical insurance companies spend over $339.2 billion in order to comply with government medical regulations. More than half of that money is spent on filing and reporting requirements.
The last, and perhaps the most avoidable reason why medical costs and medical insurance premiums are increasing is because of American's lifestyles. There is an increasing number of patients who are obese, conduct a sedentary lifestyle, and have poor nutrition...all of which contribute to chronic diseases, which account for 75% of the money spent on medical care in the U.S. each year. Did you know that the percentage of obese adults now exceeds the percentage of healthy weight adults? Also, almost 1/3 of adults do not get enough regular exercise, and 1/6 of adults have high cholesterol.
America's usage of medical services is staggering. One half of all adults in the U.S. take at least one drug a day, while 7% of all adults in the U.S. take at least 5 drugs a day. 2/3 of people who go into a doctor's office come out with a prescription. Between 1997 and 2007, prices for prescriptions grew 2.5 times faster than inflation. And Americans have been receiving tests and treatments at an alarming rate...sometimes receiving tests that they already have had, other times undergoing a treatment that hasn't proven to work, and other times staying in the hospital unnecessarily. On average, 1/3 or more of all medical procedures performed in America appears to be inappropriate, or offers questionable benefits, according to a RAND study.
Last but not least is medical care fraud. Medical care fraud is conservatively estimated to be at about 3% of all medical care spending, which translates to more than $180 million per day!
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