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Health Insurance: Where Does the Money Go?

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No matter what type of insurance you’re buying, the question of everybody’s mind is “Why is insurance so expensive?” In this topic, I will explain where and who the money goes to in health insurance.

It’s not a surprise that Americans are worried about the rising cost of healthcare. Most young adults aged 18-26 were without health insurance up until the health care act went into place. Yet, it seems every year the costs for the premium keep on rising. Let’s take a look as to why the premiums are on the rise.

When it comes to insurance, almost everybody thinks that insurance companies make big profits from these premiums but the truth is, only 3 cents of every dollar goes towards the insurance company profit. The rest? It’s divided into hospital, doctors and other medical services. To get a better understanding, see picture below.

According to government data from the Centers for Medicare and Medicaid Services, the country’s two largest healthcare expenditures last year were hospital care (31% of all expenditures) and physician care (20% of all expenditures).

What does all that have to do with the rising cost of health premiums? Well, when there is an increased utilization of such services as hospital care and physician care, the price tend to increase as well and that causes the premiums to rise.

Here’s a breakdown of what caused the prices to increase since 2008. One quarter of the reason for the rising health insurance was increased use of medical services (because of population increase). Thirty percent of the rise in premiums was due to increase in the price of healthcare services as well as the use of new technology and those prices increased because the competition decreased between medical service providers. The remaining 45 percent increase was due to inflation.

Here’s a short video to explain it better.

All we can do now is hope that in the future the price would come down but knowing the new mandates and taxes are going to be included in the healthcare law, I doubt the prices will be going down anytime soon.


6 Comments

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  3. seo says:

    It is perfect time to make some plans for the future and it is time to be happy. I’ve read this post and if I could I desire to suggest you some interesting things or tips. Maybe you can write next articles referring to this article. I wish to read more things about it!

  4. Stacy Barbee says:

    Facts and figures add value to the post. Health is wealth. But if paying for a health insurance policy consumes a major portion of your wealth, it really becomes a headache.

  5. Johnny says:

    Health insurance is out of hand right now. I feel that the price for it is just crazy, and really needs a better system to calculate how much these plans should be. Let alone the fact that certain physicians won’t accept certain types of healthcare, it should be universal.

  6. Health insurance reduce medical cost and minimize the chance of hospitalization. Health insurance is easy access to health care and prevent us from any discomfort in future.
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