Where does your premium dollar go?

Posted on February 17, 2012
Based on Healthy Communities article (Winter 2012)

dime image credit wikipediaWhen you have health insurance, you pay a monthly amount to the company to ensure that you can go to the doctor or fill a prescription. For me and others who have their insurance through their employer, this monthly premium directly comes out of my paycheck. 

I have to admit, until I read the article in the most recent issue of FCHP’s magazine, Healthy Communities (pdf), I had no idea where that premium goes. (And I work here!) According to FCHP’s online community, I’m not alone.

Cents on the dollar

Recently, we asked the members of the online community (a third of whom are FCHP members) this: “If you were to take $1 of your premium cost in the form of 100 pennies, where would each of those pennies go?”

Answers were interesting:

  • 70 cents to health care providers
  • 30 cents to insurance company overhead
  • 100 cents to executive salaries
  • “No clue! Not sure!”

In reality, 90 cents to every dollar goes to our members’ medical expenses. This includes expenses such as doctor visits, prescription drugs and hospital stays. Take a look at this graphic illustration and explanation taken from the Healthy Communities article that I mentioned above.

dollar breakdown

An inside look at FCHP’s administrative costs

The remaining 10 cents goes toward adminstrative costs, or the health plan's operation expenses. More than just overhead and salaries, it includes health and wellness programs, technology, and prevention services. 

Here's how that breaks down:

  • 3 cents - Medical and provider management, including working closely with hospitals, doctors and other health care professionals to improve quality of services, and broker distribution.
  • 3 cents - Account and membership administration,including providing convenient and knowledgeable customer service, processing claims, and helping customers with enrollment and billing, and servicing and maintaining our technology—computers, software, copiers, etc.
  • 3 cents - Marketing services, including researching and developing new products, creating and printing member publications, newsletters, benefits information, etc.
  • 1 cent - Corporate services, including upkeep and maintenance of the buildings we work in, and the basic operation of our finance, accounting and human resources departments.

Interesting to note as well -- FCHP's administrative costs are less than both the national and state averages.

For more on this topic, make sure to check out the Healthy Communities article.

- Blogged by Katie Crommett

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