Where do your premium dollars go?

How’s this for an understatement: Healthcare is expensive.

Just how expensive is it?

According to the Centers for Medicare and Medicaid Services (CMS), in 2020, the U.S. spent $4.1 trillion — or $12,530 per person—on healthcare. That’s 19.7 percent of the Gross Domestic Product (GDP), meaning we’ve now reached the point where nearly one of every five dollars in the U.S. is spent on healthcare. What’s more, the U.S. outspends other industrialized nations on healthcare, devoting nearly twice as much of its GDP compared to similar countries.

At Blue Cross and Blue Shield of Kansas, we have a responsibility to make sure our members receive affordable, quality healthcare coverage. Our job is to strike a balance: providing members with access to high quality healthcare, while doing everything we can do contain costs. We believe that smarter spending—not more spending—leads to better health, and overall, healthier communities.

How your premium dollars are spent

The chart below shows what happens with premium dollars paid to Blue Cross and Blue Shield of Kansas. As you can see, the bulk of the premium dollar — 87.7 cents — is used to pay claims to doctors, clinicians, hospitals and pharmacists who provide services to our members.

Source: Blue Cross and Blue Shield of Kansas, 2021

Claims: 87.7 cents

Most of your premium is used to pay claims to hospitals, physicians and other healthcare providers on your behalf. Here’s how that breaks down:

  • 40.1 cents is paid to hospitals, facilities and other institutions
  • 25.6 cents is paid doctors, specialists and other healthcare providers
  • 19.2 percent is paid for prescription drugs
  • 2.8 percent is paid for dental claims

Every year, 17 million plus claims are submitted to Blue Cross and Blue Shield of Kansas. To contain claims costs, Blue Cross and Blue Shield of Kansas has built a strong network and market presence in the state.

Nearly one million Kansans carry a Blue Cross and Blue Shield card. That’s one out of every three people in the state. In addition, over 96% of all providers participate in our provider networks, including 99% of all doctors and 100% of the hospitals. We negotiate savings with these doctors and hospitals to save you money. These savings are passed onto our customers in the form of lower premiums.

How premium dollars work: For any insurance to work, there must be enough premium dollars ready to pay claims. Premiums reflect the overall risk level of members within a given “pool” or set of insurance policies. Thus, the risk of someone needing extensive medical care is spread among members. Premium rate increases affect everyone, even those who don’t use their benefits frequently.

Operating expenses: 11.2 cents

Operating expenses are the cost of doing business, such as processing claims, handling member inquiries, maintaining computer systems, protecting consumers from fraud, and supporting our employees.

Blue Cross and Blue Shield of Kansas is continuously working to keep operating expenses in check. We’re constantly improving our internal processes to streamline work, cut administrative costs, and strip out work that has no customer value.

For example, in 2020 we completed the launch of a years-long initiative called the Beacon program. It consolidated data for employer groups, members and benefits from multiple platforms into one. Ultimately, it reduced complexity, risk and cost, while creating efficiencies, and ultimately helping us keep our operating costs in check.

Taxes: 1.4 cents

All businesses pay federal and state taxes, and health insurers are no different. Taxes include premium tax paid to the Kansas Insurance Department and fees attributed to the Affordable Care Act (ACA). There are also a number of taxes and fees that are specific to health insurance products and – like all taxes and fees on insurers – are built into premiums.

Policyholders’ reserves: 0 cents
Policyholder reserves represents our cumulative earnings, which we keep in the company to pay future claims and support operations. Because BCBSKS experienced a slight underwriting loss in 2021, no money was added to the policyholders’ reserves. The underwriting loss was expected and was related to COVID-19 expenses and policies in place to ensure our members didn’t have that extra burden of worrying about paying for testing, vaccination and/or treatment during the pandemic.

Blue Cross and Blue Shield of Kansas seeks a very small contribution to policyholders’ reserves each year. Contrast that to a publicly traded company whose goal is to maximize profits for shareholders. Most for-profit insurers seek a six to eight percent profit margin. Blue Cross and Blue Shield of Kansas, on the other hand, works hard to be sure every dollar we make goes to the benefit of our customers.

Smarter spending for better health

So, what is Blue Cross and Blue Shield of Kansas doing to contain the cost of healthcare? Here are just a few of our major initiatives to help keep costs in check while keeping our members healthy:

  • Disease management programs to help support and care for members with costly chronic conditions such as asthma, diabetes, COPD, heart disease, high blood pressure and high cholesterol.
  • Case management for complex or long-term care. Our case management team works closely with members who have complex, long-term health conditions. Case managers coordinate care to provide the most cost-effective options, while improving quality of life and providing peace of mind.
  • Spotting healthcare fraud and abuse. Healthcare fraud leads to higher premiums and increased out-of-pocket costs. We are continuously working to investigate and reduce the incidence of fraud, and eliminating waste and abuse.

Pharmacy programs. A major contributor to the high cost of healthcare are new brand name specialty medications and the growing demand for them. Our pharmacists and pharmacy technicians work to contain costs while providing members with access to the latest medications to treat their health conditions safely and effectively

Sources: The Commonwealth Fund, Centers for Medicare and Medicaid Services

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