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How Premium Dollars are Spent
How Insurance Premiums are Determined
Premium increases affect everyone, even those who don’t use their
benefits very much.
The premiums health insurance companies charge are developed by projecting
the amounts paid for past claims into the future to determine amounts
for expected claims.
Premium key components
Premiums must be set high enough to cover expected costs associated with
health care claims, but low enough to be competitive and affordable. Key
components of premiums include:
- Cost of benefits used by members
- Type of health care used (inpatient, outpatient, prescription
drug, etc.)
- Administration costs
- Adequate reserves to pay future claims
- Legal mandates and regulations
- Quality accreditation costs
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