Where does my health insurance premium really go?
Health insurance customers often ask a simple question about the premium they pay every month:
Where does my premium dollar go?
They’re usually not asking for a quick tutorial on how insurance works: Most people understand that everyone pays into a pool, and only those who need medical care take money out in the form of health care claims.
What many of these folks really are asking is how much of that money actually pays for health care and how much goes toward running an insurance company — or toward profits.
Blue Cross and Blue Shield of North Carolina (BCBSNC) paid $5 billion in claims in 2013. Recently we announced that we spent more than 87 cents of every premium dollar paying for our customers’ health care – doctor visits, surgery, tests, medicine, eyeglasses, etc.
Our non-medical spending largely goes toward customer service and technology. We are also a full-taxed company. In 2013, we paid out more than $100 million in local, state and federal taxes. In 2014, we paid out more than $266 million in local, state and federal taxes.
The medical loss ratio requirement (MLR), created by the Affordable Care Act in 2010, is aimed at preventing insurance companies from spending excessively on administration (including salaries) and other routine business costs. It requires insurance companies to use 80 cents out of every premium dollar from individual and small group customers to pay customer claims and support activities that improve the quality of care. (The requirement is 85 cents for large group customers.) BCBSNC has exceeded that standard for years, even before it was the law.
In 2014, BCBSNC paid $365 million more toward health care expenses than was required by the federal government. This was the fourth consecutive year that the company MLRs exceeded the requirements at 88.3 percent for individual, 87 percent for small groups, 91.3 percent for large groups and 90 percent for student groups.
The MLR requirement means that health insurers can’t just increase rates as a way to increase profits. If our spending on medical care falls below those minimum percentages, then we are required to refund the extra money to our customers. Some of our competitors have been forced to do that.
We know it’s frustrating to pay a lot for health insurance
We also know we must to do our part to rein in our own expenses. Believe me, we don’t like selling a product that can be difficult to afford. We think the best way to work toward more affordable health insurance is to keep our focus on where the majority of the money goes – health care expenses. That’s why we work every day to build new initiatives and collaborations designed to tackle the problem of rising health care costs.
Chief Financial Officer, BCBSNC