How Health Insurance Premiums Are Used

People often ask us what happens to the health insurance premiums our members pay. Here is an explanation.

Blue Cross Blue Shield of North Dakota charges premiums in exchange for providing our members with health insurance coverage. If you get insurance through your job, your premiums may be deducted from your paycheck or direct deposit.

Here is a look at how BCBSND premium dollars were used in 2014.

2014 BCBSND Dollar Breakdown UPDATED (reserves)

For every premium dollar BCBSND members paid:

  • 87.2 cents went to cover the costs of medical care members received.
  • 7.2 cents were used for operating expenses, including processing member claims, technology, and wellness programs to benefit members.
  • 2.3 cents were paid to the federal government in taxes and fees mandated by the Affordable Care Act.
  • 1.2 cents were paid in premium taxes.
  • 2.1 cents, the remaining balance, went into reserves to provide a necessary safety net in case member medical claims outpace premiums collected from members.

We have been asked if premium increases help us post hefty profits and where that money goes. As a nonprofit member-owned company, when there is anything left over after paying for members’ medical claims and our bills, it is kept in reserves — not distributed as profits to benefit shareholders.

Premiums don’t cover the full cost of members’ health care costs, but help to keep costs down, and give members discounts for covered services. Health insurance provides a safety net by capping the amount of out-of-pocket expenses members are billed by hospitals and clinics for expensive medical procedures. Those without insurance are billed directly by medical facilities and are not eligible for the discounts that our members receive. Health care costs are the primary driver of health insurance premiums.

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