September 2007
Premiums and profits
Because of the way health insurance works, insurers haven't been paying much of a penalty for failing to contain costs. Insurers
typically keep around 15 to 25 percent of the premiums they collect to cover administrative and marketing costs, plus profit
(the exact percentage varies according to state regulations, if any). The rest goes to pay for health care for customers.
"My insurance company doesn't care about costs that much because they always get to collect that 15 percent spread," Arth says. "The more health care costs, the more money they get to keep."
In 2006, the nation's six biggest private health insurers collectively earned almost $11 billion in profits.
Mohit M. Ghose, vice president of public affairs at America's Health Insurance Plans, an industry trade group, says insurers are trying to cope with rising costs with incentives such as tiered drug pricing and giving doctors and hospitals financial incentives to deliver more efficient care. "Our commitment is to improve the affordability and accessibility of health care in America," Ghose says.
Big businesses have somewhat more leverage over costs because most of them are self-insured. They cover their employees' health expenses out of their own pockets, paying insurers a percentage of their total expenditure in exchange for handling claims paperwork and gaining access to the insurers' provider networks. But even a mammoth corporation such as Ford or ExxonMobil is no match for the combined bargaining power of health-care providers.
"My insurance company doesn't care about costs that much because they always get to collect that 15 percent spread," Arth says. "The more health care costs, the more money they get to keep."
In 2006, the nation's six biggest private health insurers collectively earned almost $11 billion in profits.
Mohit M. Ghose, vice president of public affairs at America's Health Insurance Plans, an industry trade group, says insurers are trying to cope with rising costs with incentives such as tiered drug pricing and giving doctors and hospitals financial incentives to deliver more efficient care. "Our commitment is to improve the affordability and accessibility of health care in America," Ghose says.
Big businesses have somewhat more leverage over costs because most of them are self-insured. They cover their employees' health expenses out of their own pockets, paying insurers a percentage of their total expenditure in exchange for handling claims paperwork and gaining access to the insurers' provider networks. But even a mammoth corporation such as Ford or ExxonMobil is no match for the combined bargaining power of health-care providers.
