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The Cost of Care series is dedicated to helping you make sense of where your money goes, so you can feel confident in the investment in your health. We hope this Q&A will make things easier to understand. If something isn’t clear, or you’d like to hear more, let us know! You can ask a question in the comments or private message us.
Where does my monthly payment for my health insurance go?
If you have health insurance, you are probably familiar with the monthly payments that you make or that come out of your paycheck from work. This monthly payment is called a premium. You pay your monthly premium every month for the 12 months in your policy year, but what happens to the money once you pay it out? Your monthly premium covers the cost of your health care.
What do we mean by my cost of health care? What it means is that a major portion of the payments you make are used to pay direct medical care charges. That money is distributed between hospital visits, doctor’s appointments, prescription medications, medical tests, physical therapy, dental care, wellness programs, gym discounts and any other expenses to keeping you healthy. Even if you never use any of these, your premiums contribute to the pool of money insurers use to pay the medical bills for all members.
What do hospitals get from my monthly payments?
Let’s say you need to go to the hospital. Money from your premium that goes to the hospital helps to pay for the cost of running the hospital. For example, it pays their staff to check in patients, clean and manage medical equipment, information technology and finance. They also make profits from health insurance, which they use to build new hospitals, testing facilities and programs and equipment to improve quality of care. To ensure the best of care, hospitals often need to buy new equipment to replace old outdated equipment for testing, treating and diagnosing patients. Last but not least, hospitals also have to pay all their nurses and other health care professionals.
No matter how hard we try to reach every American and help them to get covered, it is a slow going process. For those who are not insured and need care, this can result in a bill being paid out of pocket over a long period of time. This can be a high expense to the patient and a loss of well-timed income for the hospital.
Hospitals can use some of the money they receive through premium payments to cover the immediate cost of treating uninsured patients who come in. Hospitals service a person in serious need with or without insurance.
What do doctors get from my monthly payments?
Similar to hospitals’ costs, your monthly premium helps to cover the cost of operating doctor’s offices and clinics, like having a staff of professionals, and even basic operations like office rent, electricity and air conditioning. Doctors are also responsible for paying for some equipment to diagnose and treat patients, just like hospitals. Your payment also goes toward protecting their practice in case of a lawsuit from a patient, called malpractice insurance.
What do drug companies get from my monthly payment?
Drug companies invest tons of money in research and development of new drugs that work toward restoring health. Their research also allows medical professionals to treat new diseases, like the West Nile Virus several years ago. Once a drug is approved for use, they have to be produced and shipped out to drug stores, and advertised to medical professionals to get these new drugs to you. Now that more people have health insurance, many of them have access to drugs they didn’t have before they were insured. Drug companies use the money they get from insurers to pay for these operations. Health insurance companies contract with drug companies to get lower costs on medicines for members. Even though a large portion of your monthly premiums goes to drug coverage, the costs are still a lot lower with insurance than if you paid for it out-of-pocket.
We hope that you feel better informed about how your health insurance payments are broken down to serve you! If you have any questions about your health insurance, coverage or payments, please leave us a note in the comments with your questions or concerns so we can provide you with all the details you want and need about your health care coverage.
Next up, What Happens to the Rest of My Monthly Payment? Just joining us? Don't worry, it's easy to go back to the beginning!
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