While we pay premiums of over $723 billion annually to health insurers and see health insurance premiums rise each year, you may find it interesting to note that health insurers generally operate on about 3% profit.
That is 1/2 the profit of life insurance companies and nearly 1/3 the profit of property and casualty insurance companies.
So why do our health insurance rates go up each year. Take a look at hospital costs, what many consider to be unnecessary tests (perhaps ordered by doctors fearful of lawsuits) and prescription drugs as the big 3 of rising health insurance premiums. By the way, major prescription drug companies have a 16.8% average profit according to the Money Magazine article used as a source for this article.
In fact, federal data shows that nearly 86 cents of every dollar you pay for health insurance premiums goes to pay for medical services such as doctor visits, prescription drugs and hospital costs.
So for each $1.00 of health insurance premiums according to a 2006 PricewaterhouseCoopers study:
- $0.86 goes to doctor visits, prescription drugs and hospital costs
- $0.05 goes to prevention, disease management, care coordination and investments in health information technology, plus provider support and marketing
- $0.06 goes to insurers’ administrative costs, including claims processing and compliance with government regulation
- $0.03 goes to health insurance company profits
Boy, it is hard to imagine the federal government running this program more efficiently than that! As a nation, we need to go after is the underlying cost drivers and inefficiencies that keep driving up the cost of health insurance.