Where The Money Goes

As a business owner, you have come to expect large increases in your employee health insurance premiums of late. Employer-sponsored health insurance premiums rose an average of 11.2 percent in 2004, and it was the fourth consecutive year of double-digit growth, according to the latest Annual Employer Health Benefits Survey released by the Kaiser Family Foundation.

It is about five times the national inflation, and probably considerably higher than the price increases, your company has instructed its products and services within the same timeframe.

The reasons for these increases is not mysterious. The largest share of the running track rises to the increased use of advanced medical technology - new diagnostic and preventive screenings, and other high-tech treatments and medical devices - most delivered to the hospital on a stationary or mobile base.

Prescription drugs, also continue to play a major role in rising healthcare costs as a result of higher prices on new formulations, wider use of combination therapies and greater consumer demand for and use of medicines in all areas of prevention and treatment. About the only area that has experienced relative stability is medical costs.

These increases, when they are part of the costs of running your business, is obviously of concern. It only makes sense that employers who wish to continue to offer their employees access to quality health care becomes more knowledgeable about how well their money is being spent by the health carrier they choose.

For example did you know that virtually all carriers in Florida are using virtually the same percentage of your premium dollars on medical claims - which works out to a medical loss ratio of 76 percent to 80 percent? They also spend about the same percentage, 10 percent to 12 percent on administration of your plan (treatment of claims, customer service functions to cover fixed costs).

And most of the airlines factor in a 2 percent margin. The remainder of your premium U.S. dollars go to the commissions paid by airlines to the independent insurance brokers who act as consultants. Mediators are obviously a critical element in matching clients with carriers. Most small business employers do not have the time or staff to determine the best package of benefits to their group, shop the market for the supply and compare product offerings carefully.

They rely on their broker to explore different options, giving them objective recommendations on the best choice and complete their applications. Brokers and services can often continue after enrollment. It is extremely valuable for employers to better understand how their premium U.S. dollars go. Do not hesitate to ask questions to fully recognize why a health plan may be preferred over another.

Employers can exercise some control over their costs by finding a health benefits company that delivers the best value for their company's premium dollars. The way you buy a health plan can affect the price.

It is the same as if your travel agent had a great deal for you - flights, car, hotel and meals included. You tell your agent to book it. Randomly, your neighbors just booked the same trip for $ 1000 less through their travel agent.

An agent acting for the best price, the second agent arranged tour through his or her vendor of choice. Whether it's a family vacation, buying a car or choosing a health benefits plan for how you shop can affect your spending.

So why are health care premiums different? Take a closer look.