July 21, 2003
Understanding how insurance works; premiums rise when costs escalate
- by Ralph H. Weber, M.D., Vice president, medical affairs, Blue Cross and Blue Shield of Kansas
We all know that the cost of health insurance is rising – we read about it in the paper, hear about it on the evening news, and we’ve seen our own premiums and deductibles go up. The fact that health insurance premiums are going up is the direct result of a broader issue: the rising cost of the medical services for which health insurance pays.
Most of us are shielded from the heavy burden of having to pay the full cost of medical procedures, treatments and drugs thanks to our employer-sponsored health insurance programs. As a result, consumers often do not know the real costs of medical services and are unaware of how their own health-related actions affect overall costs.
It is important to remember that health insurance companies do not deliver health care; rather they finance it for their members. Insurers use historical data – such as the amount of claims paid in the past – and analysis – such as age and various other risk factors – to predict what they expect to pay in the future for claims. They strive to set premiums high enough to cover the expected cost of health care claims, but low enough to be competitive and affordable.
During the past few years, our country has seen a costly combination: a significant rise in the cost of individual medical services and a tremendous increase in the number of services Americans demand. The same is true here in Kansas.
Health care costs are increasing because our population is aging and we are demanding more services. The higher use and cost of prescription drugs; advances in medical technology and treatments; hospital equipment and services; increased specialty care; over-use of emergency rooms for non-emergency needs; and other factors also contribute to the rising cost of health care.
As the demand for medical services and the cost of those services have increased, health insurance plans have been forced to cover these increased costs by passing them on to the people who have insurance. The costs are passed along in the forms of higher premiums, copayments and deductibles.
As the cost of health care rises, we all must make sure that the decisions we make regarding treatment options and our efforts to stay healthy produce the best outcome for the amount we’re spending.
Taking time to understand your own health plan can help save health care dollars for you and other Kansans. For example, many health plans offer a reduced copayment if you choose FDA-approved generic prescription drugs. If your employer offers multiple health plans, choose the plan that meets your specific lifestyle and financial needs, and recognize the balance between deductibles and premiums. And, of great importance, do what you can to live a healthy life.
Understanding what makes health care costs go up and how your own health plan works is a big part of keeping health care affordable for everyone.
Ralph H. Weber, MD, is vice president of medical affairs for Blue Cross and Blue Shield of Kansas. He spent 10 years in private practice in Salina before joining the health insurer in 1988. He was promoted to vice president in 1990.
Blue Cross and Blue Shield of Kansas is an independent licensee of the Blue Cross and Blue Shield Association. BCBSKS is the state's largest health insurer, serving all Kansas counties except Johnson and Wyandotte.