How Health Care Costs Impact Premiums

By Ryan Schuster

What’s your biggest concern about health care? For many of our members, it’s the cost of health care and being able to afford their health insurance premiums.
We understand and share these concerns. We are doing what we can to keep costs down by remaining as efficient as possible. But health care costs — the single biggest driver of insurance premiums — have surged in recent years. Increasing health costs leads to increases in premiums (see below graphic). U.S. health care spending has increased more than 10 times since 1980, reaching $2.7 trillion in 2011.

Members sometimes ask us, ‘Why do my premiums keep going up?’ The simple answer is that as the cost of health care services our members use at clinics and hospitals rises, we spend more to reimburse medical facilities on behalf of our members — requiring premiums to increase to cover the additional costs. We use member premiums to reimburse medical facilities for members’ medical claims.

Roughly 90 cents of every premium dollar we collect from members is used to pay for member health expenses (see the full premium breakdown from 2011 above). The rest is used to pay for the cost of running the business, including processing claims, taxes and regulatory fees. Since we’re a non-profit company, if anything is left over, it goes into reserves to help pay any unexpectedly high member claims. We have some of the lowest administrative costs in the industry, but we continue to look for ways to keep costs down.

Ryan Schuster is an editor in the Communications department at Blue Cross Blue Shield of North Dakota.