Very little of the dollars paid in for your health insurance result in care for anyone. Up to 95 percent of every dollar you spend on insurance funds insurance company costs, CEO compensation, and the layers of staff review to deny claims — not patient care.
Since 2010, the year the Affordable Care Act was enacted, the average family premium has increased 27 percent. Across America, companies have also experienced significant increases, watching their expenses rise up to 27 percent over the last 16 years. To avoid the significant increases in cost for both the employer and employee portions, employers chose to increase deductibles and co-pays. So, in addition to higher costs for insurance, out-of-pocket costs born by the insured have also significantly increased.
The fact that health insurance keeps going up is alarming in two ways.
First, in general, reimbursement rates paid to providers have gone down; so, it seems, the only explanation for why insurance costs are going up is that people who work for insurance companies are being paid more.
Dr. Lawrence Epstein says, “My reimbursement today, in real dollars, is 10% of what I made for the same procedure in 1998. That’s effectively a 90% cut. The declines have been steady, a few percent reduction every year; but it adds up.” Family practice doctors have seen about a 2.2 percent increase in their overall reimbursements since 2010. With costs relatively flat, the need for increases in premiums is unclear.
Secondly, financial statements reveal only about 50 cents of every dollar received in health care premiums is spent on actual patient care. In reality, these figures may significantly overestimate how much care providers actually receive.
Based on CDC data, the percentage insurance companies pay out is less than 5 percent of the money received from premiums. According to statistics provided by the CDC, the average American, not including children, visits a physician 3.4 times a year and spends .8 days a year in the hospital. More specifically, the number of physician office visits for every 100 persons is 300.8 and the number of hospital outpatient visits for every 100 persons is 41. The 2014 National Health Interview Survey found that 92.9 percent of Americans spent no time in the hospital, at all; 5.5 percent of Americans spent one day in the hospital during the 12-month period surveyed and 1.0 percent of Americans spent only two days in the hospital. Given an average individual deductible of $2,500, how much of a person’s medical bills is their insurance company really paying? If American adults spend about $900 on doctor visits ($300*3); $520 on an outpatient visit ($1,270*.41); and $1,600 on a hospital stay ($2,000*.8). Using the data provided by the CDC, it looks like the insurance company is out of pocket only about $600 per year per person. Is your health insurance premium anywhere near $600 a year?
Private insurance companies like to make money. They get paid a premium to cover you for certain basic care; and, through risk spreading, charge you a little extra to cover the cost of paying for those who get sick and whose bills become obligations of the insurance company. They also charge you for their administrative costs, and, of course, you pay a little more to cover their profits.
When a claim is reviewed, insurance companies generally start from a position of “No.” Every claim receives about five touches before it is accepted or denied, making the cost of claim review very high. Why do so many people need to review a claim before it is paid and, frankly, why should premiums cover these costs? If you are submitting a bill, it is generally because you were sick and needed to see a doctor to return you to health. It is highly unlikely that one would submit oneself to a physical examination and a battery of tests because it would be an enjoyable experience. One should then ask, “Why am I paying all this money to fund you looking for a reason not to pay my claim?”
Your premium also pays for excessively high salaries. CIGNA’s CEO David Cordani received $49 million in compensation for 2015; Cigna-HealthSpring President, Herbert A. Fritch, received $50.5 million for the same period. Its Chief Financial Officer Thomas A. McCarthy was paid $7.3 million and General Counsel Nicole S. Jones collected $9.9 million in compensation, which means four of CIGNA’s top executives accepted over $115 million dollars.  These payments were paltry compared to UnitedHealth Group CEO Stephen J. Hemsley’s $66.13 million in compensation last year.
In the best case, insurance could be cut by almost 50 percent and that money used by people who pay those high premiums to fund Health Savings Accounts or other alternatives that really do pay for a person’s care. In the alternative, insurance companies could put that money to work and start evaluating health care claims from a position of “Yes” rather than from a position of “No.” Maybe then more people actually would receive care.
When government says that the cost of health care keeps going up what they mean is that the cost of health insurance keeps going up. If we increased allowable contributions to health savings accounts, instead of funding lavish lifestyles for insurance company executives, perhaps people could get the medical care they need, not the cheapest care the insurance company wants us to have.
Why is that so hard?
Minda Wilson, J.D., is an author and a corporate attorney, specializing in healthcare. A recognized expert on the Patient Protection and Affordable Care Act, she consults with clients regarding its proper implementation. She is founder of Affordable Healthcare Review, an educational organization providing information about healthcare legislation, its application, and impact. Her book Urgent Care will be published in September 2016.
 archive.ahrq.gov/news/newsroom/news-and-numbers/042011.html (it should be noted that the average cost cited was only $199 per visit.)