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Economics of Health Care:
Identifying Health Care Costs

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The rising costs of health care create an unsustainable burden on consumers, employers and government. Blue Cross and Blue Shield of Illinois (BCBSIL) wants our members and the general public to know how health insurance premium dollars are being spent. More important, there is a need for education and awareness about what truly drives costs and how to help keep these expenses down. While most Americans use health care, few really know where their money goes and what medical care and services actually cost.

Federal government data confirms that rising health care costs are driven by increased spending on hospital care, physician services, prescription drugs and other medical services. As the dollar image below illustrates, 87 percent of every health insurance premium dollar is used to pay for such direct medical care. These medical treatment costs are rising at two to three times faster than the rate of inflation.

Health care affordability and sustainability depends on creating efficiencies in the 87 percent of the health care dollar that goes to direct medical care costs.

Where does the typical health insurance dollar go1? (Roll your cursor over the dollar bill for more information.)



Hospital Costs (35%) – These includes inpatient services (typically medical treatment where a patient stays overnight) and outpatient services (less complicated procedures that do not require an overnight hospital stay.)
Physician Services (33%) – Physician services include the cost of patient care, such as salaries, facilities, technology and medical malpractice lawsuits.
Prescription Drug Costs (14%) – These are costs related to medications prescribed by a physician.
Administrative and Government Costs (6%) – Payments to the government include taxes and compliance. These costs also include claims processing and other administrative costs.
Other Medical Services (5%) – These costs include durable medical equipment, orthotics, therapy, hospice, skilled nursing services and other ancillary provider services.
Consumer Services (4%) – These costs include prevention services that help members stay healthy, as well as medical management programs, provider support and health information technology investments – all of which help to avoid millions of dollars a year in unnecessary medical costs.
Insurer Margin (3%) – Insurers typically operate with a profit margin of 3 percent or less. This is one of the lowest profit margins in the health care industry.

No simple task

Controlling health care costs is no simple task and will require the combined effort of the government, insurers, providers and the general public. As economic difficulties may pressure healthy individuals to go without insurance, the market includes a disproportionate number of unhealthy people who incur higher health costs. In addition, unemployment drives up the number of uninsured and increases the number of expensive visits to the emergency room.

With approximately 6.8 million members, BCBSIL is the largest health insurance company in Illinois and makes every effort to keep its coverage affordable and accessible to all Illinoisans. We’re committed to working with hospitals, physicians and employers to provide access to quality medical care at competitive rates.

For more detailed information, download Economics of Health Care: Identifying health care costs.

Sources

  1. America’s Health Insurance Plans. PricewaterhouseCoopers’ Factors Fueling Rising Healthcare Costs 2008.