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HOW PREMIUM DOLLARS ARE SPENT by James Roosevelt, Jr.

When people debate the merits of health care delivery systems, it isn’t the quality that is in question, though it should be part of the discussion. Rather, in large part, it is the cost of insurance coverage that fuels the debate. As the CEO of a not-for-profit health care plan, I can tell you firsthand as one who oversees the coverage of more than 650,000 members, and as an employer, whose company’s health care costs were in the neighborhood of $15 million last year, keeping health care as affordable as possible is something I think about a great deal. So I thought it would be constructive to share with you the break down of how premium dollars are spent.

Overwhelmingly, health insurance premiums pay for the cost of medical care and other services that benefit members. That’s appropriate and why one has insurance in the first place.

According to information compiled by the Massachusetts Association of Health Plans, in our state, medical expenses account for 87 percent of the health care dollar. That includes hospital services, physician care, other health professionals, medical devices and other medical services, and prescription drugs.

Ten percent goes towards administrative cost, which includes care management programs for individuals with chronic conditions, functions such as claims processing, consumer and provider support, marketing, compliance with government laws and regulations, and other activities that support health plan operations.

Among not-for-profit plans, administrative costs also include reinvestment of funds into strategic initiatives designed to control costs and improve members’ health.

Examples of those programs include developing medical practice criteria that is based on best practice data and working with provider groups and health systems to develop pay-for-performance plans, which include measurements of cost savings and quality. Appropriately, employers are keenly interested in how health plans manage their administrative costs and the onus is on the health plan to demonstrate efficient operations.

Most not-for-profit health plans in Massachusetts operate within a one to three percent profit margin, all of which is ultimately used for reserves or strategic investment to benefit the plan’s mission.

Maintaining affordability will contribute to access. Keeping premium costs down requires the collaboration of health plans, hospital systems and provider groups. It also extends to interested employers who seek to improve the health of their workforce, and to all of us individually who choose to make healthier lifestyle choices or seek medical intervention prior to emergency situations. We all can contribute to maximizing health care value in order to keep premium costs as low as possible.

James Roosevelt, Jr. is the President and CEO of Tufts Health Plan.

This program aired on September 10, 2007. The audio for this program is not available.

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