In 2010 almost $850 billion was spent on premiums to purchase private health insurance, which still is the source of health care coverage for the largest subset of Americans. About 90% of people covered by private health insurance are in employment-based plans, and the remainder purchase individual policies. Employment-related plan premiums are 95% of total private insurance costs, reflecting the richer benefits and higher costs of these plans. Employees contributed about 28% of total private health insurance premiums. Rates for private insurance have risen rapidly in the last ten years and the employee share of these premiums has increased even faster. This means that more and more of people’s pay is going for health insurance costs, not to mention higher deductibles and copays. (NIHCM Brief)
Where does the money collected in premiums by the health insurers go? In 2010 88% went to purchase health services and goods for the covered persons. About 34% of premium revenue went to hospital inpatient, outpatient and other hospital-based services. About 28% went for physician and lab services. Around 14% was paid for prescription drugs and durable medical equipment and 9% went to dental and other professional services. About 3% was for home health and long-term nursing care. The remainder, 12%, is the net cost of private insurance, or administrative costs, taxes and profits. Over the five year period leading up to 2010, hospitals accounted for 45% of the increase in private health insurance spending; physicians caused 25% and altogether, health services were responsible for 97% of the increase. The net cost of private health insurance accounted for only 3% of the rise in spending during this period. And a compilation of data from a number of sources shows that the vast majority of the increase in spending on health services is due to rising unit prices, not to greater utilization or service intensity.