Ever wondered where the health insurance companies spend the money that you pay to avail the health coverage? Of course, there is no single recipient who receives all the money. If you have bought health insurance and ever paid heed to the words of advisors or experts, you might have understood that there are various components of health insurance coverage. For example:

  1. Doctor visit
  2. Hospitalization
  3. Prescription drugs

The premium that you pay for your health insurance policy covers the costs for all these segments. The importance of understanding these terms lies in the fact that you can choose to opt out what type of coverage you might not need, which helps in reducing the premium costs. Let’s suppose you enjoy good health status and do not need to see a doctor too often. You can opt out of the coverage provided for doctor visit because it helps in lowering the premium; actually you will find it lower than paying the full amount out of your own pocket.
It is clear that understanding the distribution of coverage type and costs involved in every segment of a health insurance policy does help the consumers…

In a guide released by the BlueCross BlueShield of Oklahoma, some distribution is given about where the premium paid by the consumers goes:

Coverage ComponentDescriptionCost Spent (%)
Hospital CostsThis includes both inpatient and outpatient services35
Physician ServicesCost of patient care including salaries, facilities, technology and medical malpractice lawsuits33
Prescription Drug CostsCosts of prescription drugs for healthcare services14
Other Medical ServicesMedical equipment, orthotics, therapy, hospice, skilled nursing services and other ancillary provider services5
Government payments, compliance, claims processing and other administrative costsTaxes, mandates and compliance, claims processing and other administrative costs6
Consumer ServicesPrevention services that help members stay healthy, medical management programs, provider support and health information technology investments4
Insurer MarginThe money that goes to the insurance company

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