We often receive questions from members about how their insurance premiums are used. Here is an explanation.
Members pay us premiums in exchange for receiving health insurance coverage. If you receive insurance through your employer, your premium may be deducted from your paycheck or direct deposit.
In 2013, 92.7 percent of member premiums (or roughly 93 cents out of each premium dollar we collect) was used to pay for medical care and services used by our members. The rest went to pay for the cost of running the business, such as processing claims, taxes and regulatory fees (see breakdown below). Our administrative costs of 8.2 percent were among the lowest in the nation. If anything is left over at the end of the year, it is kept in reserves to pay for higher than anticipated medical claims. In 2013 we posted an operating loss, so we dipped into our reserves to make up the difference. But rest assured that our reserves remain adequate.
Financial losses from 2013 not associated with providing health insurance to members will not impact future member premiums. Premiums are set based on past and predicted future member medical claims and must be approved by the North Dakota Insurance Department. If premiums rise for some of our members in 2015, it will be because of increasing medical claims for those groups and individuals and anticipated higher claims for those people in the future. The primary driver of health insurance premiums is health care costs.
Health insurance works by pooling risk to make coverage affordable to all those in the group. When you buy insurance from an employer or directly from an insurance company, you become part of a group depending on your plan and coverage selections. The premiums paid by all in the group are pooled together to cover the health care costs of everyone in the group. Some people in the pool may use more health care services than others, but by pooling resources together, it helps to keep insurance more affordable for all and increases purchasing power through discounts we negotiate with doctors and hospitals.
Ryan Schuster is an editor in the Communications department at Blue Cross Blue Shield of North Dakota.