7 secrets of health insurers

By Insure.com

Health insurance can seem impenetrable. For starters, have you tried reading your policy? It's dense. With different regulations in each state, countless varieties of policies and elusive pricing practices, health insurance can seem downright confounding.

And wrapped up in all this are myths about health insurance that were perhaps once true -- or never were. Here's a look at seven things you probably didn't know about your health insurer.

1. Health insurers' profit is about 3%.

Health insurers rack up revenues of $723 billion a year, according to data from the Centers for Medicare & Medicaid Services. So you might think they make money hand over fist.

But with the costs of health care and prescription drugs rising every year, health insurers generally eke out only about a 3% profit. Health insurers would, in fact, make a bigger profit by selling toys to children.

By comparison, here are profit margins for other businesses, according to Hemscott, an independent financial data provider:

• 1.6% for grocery stores.

• 4.3% for toy stores.

• 6.5% for life insurance companies.

• 8.0% for resorts and casinos.

• 8.2% for property and casualty insurers.

• 16.1% for cigarette makers.

• 16.8% for major drug manufacturers.

The federal data show that almost 86 cents of every dollar you pay for health insurance premiums goes to pay for medical services such as doctor visits, prescription drugs and hospital costs.

According to a 2006 PricewaterhouseCoopers study conducted for America's Health Insurance Plans, an industry trade group representing about 1,300 companies, the remainder of your premium dollar is spent on the following:

• 5 cents for policyholder services such as prevention, disease management, care coordination and investments in health information technology, plus provider support and marketing.

• About 6 cents for insurers' administrative costs, including claims processing and compliance with government regulations.

• 3 cents for health insurance plan profits.

2. Your health insurer regularly pays for unnecessary medical tests.

The cost of medical liability goes beyond legal costs for health insurance companies: About 10 cents of the nearly 86 cents spent on medical services goes to medical liability and the practice of defensive medicine.

In these litigious times, doctors often feel they must cover all the bases when a patient comes in with a health complaint. That can mean rounds of tests to rule out far-fetched conditions or even prescriptions handed out because patients demand them.

In Pennsylvania, for example, where there is no cap on jury awards, more than 90% of physicians admitted practicing defensive medicine, according to a 2005 study in The Journal of the American Medical Association:

• 43% used imaging technology when it wasn't necessary.

• More than 50% referred patients to other specialists.

• 70% of emergency physicians ordered additional diagnostic tests.

• One-third prescribed more medications than were necessary.

• 60% used unwarranted invasive procedures.

• 42% restricted their practices by eliminating procedures such as trauma surgery and avoiding patients with complex medical issues.

Continued: Commission

 1 | 2 | next >