As a mutual insurance company owned by its policy holders, Wellmark works hard to minimize the size of our rate increases. We are not driven to create profits for shareholders, as we have no shareholders, but rather to provide the best value for the approximately 2 million Iowans and South Dakotans we insure.
Health insurance premiums are meant to cover the amount the insurance company will pay for health services a member is expected to use during the year. They are developed by projecting past claims expenses into the future. Think of it like your household budget – you look at your expenses from the previous year, and estimate how much money it will take to cover those same expenses in the next year.
Because health care costs continue to rise, rate adjustments must be made to meet these future increases in costs. In fact, over the last three years, claims payments (money we pay out for members’ health care) have risen faster than insurance premium increases.
Many factors influence the cost of health insurance coverage, including:
- Rising medical prices (the cost for an MRI, for example).
- Increases in the number of services members use (utilization).
- Rising prescription drug costs.
- New high-cost medical diagnostic and treatment services.
- Legislative benefit mandates that add to the cost of health insurance. It is conservatively estimated that these mandates account for 10-15 percent of health insurance premiums.
- The overall decline in the health in our country (including Iowa and South Dakota). Obesity, for example, can lead to increased costs due to its association with diabetes, heart disease, and orthopedic care.
Increases Don’t Boost Wellmark Profits
As an example, Wellmark’s earnings from operations (for fully insured business) for the three-year period between 2007 and 2009, was a negative 0.9 percent. This means that, for every dollar we received in premiums, Wellmark retained nothing. Wellmark’s 2009 earnings from operations were even less than the three-year average at negative 2.8 percent of revenue, as premiums were not sufficient enough to cover medical costs for our members.
So, Where Does My Premium Dollar Go?
As you can see from the graphic below, 88 cents of every Wellmark premium dollar went directly to the physicians, hospitals and pharmacies who provide care to our members. Here's the percentage breakdown for 2007 - 2009 (click the dollar bill graphic for more detailed information):
Wellmark does not attempt to use future premiums to make up for past losses. Premium increases are used to match revenue with the expenses we expect in the future.
Premiums and Our New Headquarters
Wellmark is committed to not increasing premiums or administrative fees to its customers to cover costs related to the new headquarters building. In fact, moving from five facilities into one will increase our efficiencies and help us to reduce costs because the new building is being designed to make Wellmark’s business and processes more efficient, which will help lower administrative costs and have a positive effect on premiums over the long term.