Breaking Down Insurance Premium CostsJune 19, 2018
Most people who pay for health insurance pay a monthly premium. According to the Association of Health Insurance Plans (AHIP), that monthly payment covers medical care and costs involved with providing insurance. Here’s how that monthly cost breaks down.
Most of Those Dollars Go to Medical Expenses…
About 80% of each dollar paid in your premium, or monthly payment, goes toward health care costs and quality improvement activities. The other 20% is used to cover the health insurance company’s administrative overhead. This is called the 80/20 rule.
- Make health insurance more affordable for more of us.
- Expand Medicaid, jointly-funded federal-state health insurance for low-income people.
- Encourage new methods of care delivery that lowers costs.
Here’s How Healthcare.Gov Breaks down That 80%:
- 2.1 cents for prescription drugs, which include outpatient, physician- and self-administered medications. This doesn't include those given in in-patient settings.
- 22 cents for doctor services.
- 19.8 cents for outpatient services, like ER care, labs, imaging clinics, physical therapy, urgent care, etc.
- 15.8 cents for inpatient services, typically hospital care.
How is the Remaining 20% Broken Down?
- 18% or 17.8 cents for operating costs, including communicating with plan members, running customer service operations, quality reviews, data analysis and other activities.
- 3%* of every dollar is the profit for the health plan.
How to Reduce Insurance Premium Costs
- Ask for help from your human resources department or your insurance broker to learn about and choose your most affordable health plan.
- Remember that using doctors in your plan costs less than going “out-of-network.”
- See if a consumer-driven health plan (CDHP) such as a high-deductible plan with lower premiums might be right for you.
- Consider starting an HSA, flexible spending arrangement (FSA), or health reimbursement arrangement (HRA). These plans have tax advantages.
- Use prevention and wellness services, especially if you've been advised by your doctor to make lifestyle changes to improve your health.
- Use urgent care instead of the emergency department for non-emergency care.
*AHIP: "Values exceed 100% due to rounding."
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