Where Health Dollars Go in Premium Payments

premium payments

Where Health Dollars Go in Premium Payments

Every year, people pay upwards of thousands in premium payments for a health insurance plan in case of a medical emergency, though some payers hardly ever need the medical care. With the increased focus on healthcare, there can be some apprehension over whether the money we spend goes to the health care we deserve. Fortunately, you will be glad to know that most of the premiums that we pay monthly to maintain insurance are used purely for medical costs.

According to the medical loss ratio (MLR) requirement under the Affordable Care Act, at least eighty cents of all premium payments must go to what is defined as medical expenses for small groups or individuals. Things such as hospitals, physicians, prescriptions, and other inpatient and outpatient services fall under these expenditures and what most people consider a good use of their monthly payments. For larger groups or companies, the number usually increases to eight to five cents for every dollar with some insurance companies exceeding the number to more than ninety percent. Rest assured that insurance companies still take the priorities of health services into mind.

For the additional percentage, most of the remainder goes into operating costs and consumer services. In this case, the premium can go towards paying state taxes, marketing services, and other activities surrounding the maintenance of the industry and its customer satisfaction. While this does not go directly into health care, it can be an essential feature to maintain the overall service of the insurance company or even the hospital.

However, almost three percent of the premiums do indeed go to what is defined as a profit margin. Still, the MLR requirement prevents companies from increasing products for more profit, ensuring a base level of medical spending. Furthermore, with this minor percentage, insurance companies often work to better their standards and increase their reach out to more consumers to assure better health coverage for more people.

Whether the cost of health insurance premiums increases or decreases hardly matters unless the money we spend goes to rightful costs. Where it stands now, most spending continues to pay for health services with laws in place to maintain the right priorities. As long as the focus remains in the right direction, the role of premiums can be a manageable, though sometimes exasperating, compensation.

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Melinda Martin

Account Executive

Melinda began her insurance career in 1985 with Alexander & Alexander where she received her Property & Casualty and Life & Health license. Since then she has worked at various agencies in the New Orleans area and in California as a senior account manager for Employee Benefit Plans.  While in California, she was also the Membership Director for the Burbank Chamber of Commerce. Melinda joined the AWS team in July of 2015.

Michael A. Seeling

Vice President

Graduated from the University of Louisiana at Lafayette with a B.A. in Insurance Risk Management and is a graduate of Archbishop Rummel High School in New Orleans. He joined AWS in October of 2008 and has been awarded the Patient Protection and Affordable Care Act Certification (PPACA). Additionally, he is working towards his Certified Insurance Counselor (CIC), Registered Health Underwriter (RHU), and Registered Employee Benefits Consultant (REBC) designations. He is also a member of the National Association of Health Underwriters (NAHU), National Association of Insurance Financial Advisors (NAIFA), and is an active member of the Fore!Kids foundation.