by Tom Abel, Supervisor, Rates and Forms, Colorado Division of Insurance
It probably comes as no surprise that increases in the cost of health insurance easily outpace inflation or pay increases for most Coloradans.
However, it may surprise you to know that the vast majority of your insurance premiums are spent on the health care services that you, your family and perhaps your co-workers receive.
The Colorado Division of Insurance recently released its annual report on how much Coloradans spend on health insurance, and how the insurance companies spend those dollars. The report uses data from calendar year 2010, the most recent year for which all data is available.
We found that in 2010, Coloradans spent $7.1 billion on health insurance premiums, a 22 percent increase over the $5.80 billion spent in 2009. This includes all types of health insurance: comprehensive major medical, dental, vision, disability, long-term care and Medicare supplemental (Medigap) insurance.
Overall, in 2010, health insurance companies spent 81 percent of the premiums dollars they received on paying claims for health care services (for all types of health insurance). That’s up from just under 77 percent in 2009. In addition, profits for health insurance companies dropped; in 2010, the profit margin was 2 percent, down from 8 percent in the previous year.
Why does this matter?
As companies spend more of the premiums on paying for health care services, the effect of health care costs on premiums becomes more obvious. If health care costs continue to increase, chances are premiums will as well.
Our report also shows that more of the increases in health insurance premiums were covered by employers rather than being passed on to employees. The trade-off may be that employees instead saw increased deductibles and copayments.
In addition, the percentage of employers who offer health insurance to their employees continues to drop. In 2010, 52.5 percent of employers offered health insurance, down from 55.2 percent in 2009. Those hardest hit were employees of small businesses with less than 50 employees. In 2010 39.1 percent of small businesses offered health insurance, down from 43 percent in 2009.
Health care, and the insurance we use to pay for it, are changing dramatically, especially as federal health care reform becomes fully implemented in the next few years. It’s up to all of us as consumers of health care and health insurance to learn about how our health insurance dollars are spent, and what we can do to control the costs of health care services.