16:42 PM

The Cost of Health Insurance Explained



Nearly 90% of premiums pay doctors, hospitals, pharmacies and medical claims.

For many people, adding the cost of health insurance to the household budget may seem like a paradox. The thinking often is, “Why pay a significant expense for something we may not even use? What if we take our chances without it?”

It’s understandable for such “what if” questions to arise. But getting to the right answer takes some practical  and contingency  thinking. For example, what happens to even the most carefully planned household budget when someone in the family experiences an unplanned (and uninsured) event that requires a $16,000 hospital stay or a medical procedure costing in excess of $100,000, or a prescription medication priced at $1,000 or more per month?

Health insurance premiums are the buffer between you and the true and astronomical cost of U.S. health care, which is roughly $3.8 trillion per year. That’s $11,582 in spending for every person. We’re working on ways to keep these costs down so the premiums on which these costs are based can be brought under control, and you can get more value from the premium dollars you pay.

To help you better understand how the cost of hospitalization, drugs, medical devices and other services are paid, here’s what happens to your premium dollar:

Physician services (29 cents). These include all fees paid to doctors for a wide range of health care services. A few of the many are annual check-ups, preventive care (mammograms, cancer screenings, blood tests, etc.), surgery and recovery care and much more.

Outpatient costs (21 cents). From in-home nursing visits to post-operative evaluations, treating bone fractures to physical therapy, these costs were incurred for care at outpatient facilities (those that don’t involve an overnight stay). According to the New Jersey Health Care Quality Institute, outpatient spending in New Jersey – across all health care providers – rose higher than the national average.

Prescription drugs (20 cents). One of the fastest rising and most debated health care expenses, controlling prescription drug costs is a challenge for everyone involved in health care as they are rising faster than any other part of health spending.

Inpatient costs (18 cents). Hospital stays generate a myriad of expenses, and often include charges for surgeons and other specialists, nursing and a wide range of other hospital fees. These costs can be quite high for lengthy stays due to acute emergencies or chronic illnesses.

What about other expenses?

After covering our members’ care needs, we were left with 12 cents out of every dollar collected. Here’s where we applied the money—and why.

Premium taxes, Affordable Care Act (ACA) fees and other taxes (3 cents). Horizon is a not-for-profit company, but we still pay plenty of federal and state taxes. From 2017 through 2020, we paid $1.58 billion in annual fees and taxes.

Administrative services (7 cents). Like every business, large and small, we incur expenses running the company – salaries, phone and electric bills, printing costs, advertising, accounting, information technology and other operating costs connected with the routine functions needed to manage the health care of nearly 3.6 million people.

Insurance Brokers and Consultants (2 cents). Many people and businesses use a broker or consultant to help them make the right choices about their health insurance. They play an important role making sure that business owners and their employees understand their plans and how to use them to get the care they need. Brokers are paid through commissions on the policies they sell.

What about Horizon’s profits? There aren’t any.

Finally, after all of these expenses, what remains of each dollar collected is … a small fraction of a penny.

In fact, only one-tenth of a penny of our revenue stays with Horizon. As a not-for-profit company, we have no shareholders or investors, so any income remaining after we’ve paid all the claims and bills goes into a reserve fund that protects our members.

New Jersey, like most states, requires a minimum level of capital reserves for a health insurer to operate in the state. These reserves are there to pay claims or other expenses when the unexpected happens. Reserves enable insurers to continue paying doctors or pharmacies during a natural disaster like a hurricane or cover unexpected costs if a public health crisis like a massive flu outbreak occurs. It’s one more way we give our members peace of mind.

Working Together to Control Costs

Horizon is working with doctors, pharmacists, and hospitals to change the way we pay for your health care to get costs under control. We’re leading the effort to move from a system that paid health providers for the number of services they deliver to instead pay them for better results. We’re also aggressively working with our partners to arrest some of the core issues behind chronic health conditions that prevent our members from achieving their best health. We’re investing more in programs that more holistically help our members address co-occurring behavioral, substance use and medical challenges, and those that help our members overcome barriers to care that are tied to where they live, their income and other “social determinant of health” (SDoH).

Better care, lower costs, and an improved health care experience for our members. That’s Horizon’s focus.