Why is Health Insurance so Expensive
Health Care Costs
Health care costs are rising. But do you know what’s behind the increases? Do you know where your health insurance premium dollar goes? For each dollar you spend on health insurance premiums,about 90% – or 90¢ – pays for your care. The other 10% – or 10¢ – is used by the insurer, mostly to process claims, provide customer service and offer health and wellness programs.
Below is a breakdown of your health insurance premium dollar.
Hospitals (39¢) – About 39¢ of your premium dollar goes to hospitals. This is true even if you never need to go to the hospital. Your premiums get combined with other members’ premiums. Then insurers use this money to pay claims. If hospitals charge your insurer more, it takes more of your dollars to cover those charges.
Hospitals use this money to:
- Pay workers
- Update, expand and build new hospitals
- Buy new equipment to test and treat patients
- Cover the cost of caring for the uninsured
- Make profits (2% for a small hospital to 20% or more for a large hospital system).
Doctors (22¢) – Another chunk of your premium goes to pay doctors and other health care providers. Keep in mind, a specialist costs more than a family doctor. And, doctors in a larger city may cost more than those in smaller and rural areas.
Doctors use this money to:
- Cover their cost for care of patients
- Pay their staff
- “Keep the lights on” at their office or clinic
- Buy equipment to test and treat patients
- Cover their medical malpractice insurance
- Pay themselves
Drug Costs (21¢) – U.S. drug spending is on the rise by 7.3% yearly. Many new drugs are coming on the market. Some that treat serious illnesses have big price tags. And, more people are insured now. They can get care and drugs that they may have gone without when they were uninsured. So more people are spending more on drugs.
What goes into the cost of drugs?
- Research and development
- Making the drugs
- Getting them out to people
Other Health Care Services (8¢) – From finger splints to wheel chairs, these costs come out of your premium, too.
This piece of the dollar also covers:
- Skilled nursing
- Other indirect provider services
Other Expenses (10¢) – The final 10¢ of your premium dollar goes to the insurers’ cost of providing coverage. Most of this covers the cost to process claims, provide customer service and offer programs to help you stay well. There remaining 2 or 3¢ is the insurers’ profit margin.
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- Forbes. “Hospital Profits Soar as Obamacare Prescribes More Paying Patients.” Mar. 1, 2015
- Business Insider. “Here are the 6 Reasons Prescription Drugs are so Expensive.” Sept. 25, 2015.
- Percentages based on National Health Expenditure Data, Centers for Medicare and Medicaid Services, Agency for Healthcare Quality and Research, IMS Institute, 2013.