For every dollar you spend on health insurance premiums, how many cents does your health insurance company take? Twenty-five? Thirty? The rhetoric on rising health care costs would certainly lead you to believe it’s a hefty number like that.
Actually, in 2009, according to data gathered by the Centers for Medicare and Medicaid Services, it was eleven. Eleven cents out of every premium dollar went to insurance company administration, only two or three cents of which is profit. Even more important, though, is the trend the data show: seven straight years of decline. Since 2003, administrative costs have taken up a smaller and smaller share of the insurance premium dollar.
So when we’re trying to figure out why premiums are increasing rapidly—and when we’re trying to do something about it—why do we keep focusing our efforts and our legislation on the one aspect of health care spending that’s decreasing as a percentage of total cost?
The fact is the increases in health care costs are just that: increases in the cost of care. Almost all of what you’re paying for is medical expense. Now I’m not trying to argue that small costs don’t matter; everything matters with a problem this big. But some things just statistically matter more, and we should act accordingly.
For example, if my mortgage were more than I could handle, I could try to save money by packing my lunch instead of eating out. But maybe what I really should be thinking about is living in a smaller house with a smaller mortgage.
Does “smaller house” sound like a big and difficult change, and “packing lunch” sound pretty easy?
I think we just figured out why health insurance administrative costs and profits get so much attention.
These are so good, I’m starting to share with brokers. 1. It gives me additional opportunities to makes contact. 2. It allows me to influence their perception of MVP in a favorable way – which helps me to sell. 3. It creates discussion and buzz among brokers thats becomes another way to spread favorable awareness about MVP. Thanks
Jose
I couldn’t have said it better-great analygy to use with clients…
I have read all of these blog entries with interest, but this is by far the best.
It is fascinating to me how people fixate on costs that are seemingly being ‘thrusted’ upon them, and ignore gigantic expenses that they ‘thrust’ upon themselves. I once stopped at a thruway rest area and waited on line 20 minutes behind a group of golf shirt wearing seniors buying a slew of lottery tickets. When I asked where they were going, they said they had chartered a bus heading up to Canada to get their drugs across the border because it is a cost savings.
No concerns about the lottery tickets or the cost of the bus trip because that was their choice. But plenty of concern about the profits the healthcare companies were taking from them against their will!
Mr Oliker
I read your articles regularly and really appreciate your candor and openness. In this case, I think it’s a bit misleading. By using % as a measurement as far as admin. costs go, what you did not point out was how much premiums have gone up in that time period. Simply put, if I am getting 10% of a $1000 premium 5 years ago or 8% of $1,500 premium, my % went down, but my admin dollars certainly went up (20% higher)!. Did I do more as a carrier to get that 20%? Certainly did not stop costs from skyrocketing. Not placing blame, but just putting into context. Maybe carriers should start referencing admin. cost per member instead of %.
Thank you
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Kevin – you are right on the money(every pun intended) – its not the so-called profits, its the administrative bloat insurance companies are enjoying as a percentage of total premium for no improved outcomes, financially or clinically. Some so-called not-for-profit insurance companies are actually worse that the for-profits. Business leaders in fact are beginning to recognize that much of the “managed care” activities “abdicated” to health plans is better positioned inside primary care, at the true point of care, and that these real dollars need to be directed that way. Health plans should, although many won’t, come clean on this issue and take the lead in helping employer spend that money more wisely. And yes, begin quoting administration on per enrollee per month/year basis as a measure of their own efficiency. Health plans process claims, they don’t provide care and managing that care is part of providing care – at least it should be.
Jed