Where Does the Money Go?
Sometimes it seems like the money for our premiums just disappears from our paychecks, gone forever. Actually, health insurers collect it, as well as the money contributed by your employer, the government, or whoever else helps pay for your plan. They use it to pay doctors, hospitals, pharmacies, and other health care providers to take care of the health plan members, including you.
If the cost of everyone’s care adds up to more than the money collected by the health plan, the plan may lose money. Usually they’ll fix it by working to hold down costs and raising dues the next year. In years when there is money left over, many plans put it into a “reserve,” a sort of rainy-day fund to help cover occasional losses or provide a safety net during emergencies.
Nonprofit health insurers try to collect exactly the amount of money they need to pay doctors, hospitals, and other health care providers while covering their operating expenses. In reality, they miss by a little bit above or below each year, but their goal is not to make a profit. Of course, they try hard not to suffer big losses either. For-profit health insurers, as you can probably guess from their name, want to make a profit.
That’s one of the main differences between insurers – the percentage of every premium dollar that goes to pay for its members’ health care. In Hawaii, for example, most insurers have paid about 90 cents of every premium dollar they receive to cover their members’ health benefits. But that number can vary from company to company.