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Where the Money Goes

By Peter Joseph

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

That's about five times the rate of inflation nationally, and probably significantly higher than the price increases your company has imposed on its products and services in the same time frame.

The reasons for these increases are not mysterious. The largest share of the ongoing increases track to increased utilization of advanced medical technologies - new diagnostic and preventive screenings, and other high-tech therapies and medical hardware - the majority of which are delivered at hospital on an inpatient or outpatient basis.

Prescription drugs also continue to play a major role in the rising cost of health care, owing to the higher prices of new formulations,

the wider application of combination therapies and greater consumer demand for, and need of, medications in all areas of prevention and treatment. About the only area that has seen relative stability is physician costs.

Such increases, when they are part of the costs of running your business, are naturally cause for concern. It only makes sense that employers who want to continue offering their employees access to quality health care become more knowledgeable about how well their money is being spent by the health care carrier they


For example, did you know that virtually all carriers in Florida spend roughly 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 administering your plan (processing

claims, providing customer service functions, covering fixed costs).

And most of the carriers factor in a 2 percent profit margin. The balance of your premium dollars go to the commissions, which carriers pay to the independent health insurance brokers who act as consultants.

Brokers are, of course, a critical element in matching clients with carriers. Most small business employers don't have the time or staff to determine the best package of benefits for their group, shop the market for bids and compare product offerings


They depend on their broker to explore the different options, give them objective recommendations on the best choices and complete their applications. And brokers services may often continue after enrollment. It's extremely valuable for employers to better understand where their premium dollars go. Don't hesitate to ask questions to fully recognize why one health plan may be preferred over another.

Employers can exercise some control over their costs by finding a health benefits company that provides the best value for their company's premium dollars. The way in which you shop a health plan can impact the price.

It's the same as if your travel agent had a great deal for you - air, car, hotel and meals included. You tell your agent to book it. Coincidently, your neighbors just booked that same trip for $1,000 less through their travel agent.

One agent shopped for the best price, the other agent arranged the trip through his or her vendor of choice. Whether it's a family vacation, buying a car or choosing a health benefits plan, how you shop can impact your cost.

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

About The Author
PETER JOSEPH is senior vice president for commercial sales for VISTA, a health benefits company headquartered in South Florida with more than 330,000 members. VISTA, through its affiliated companies, Vista Healthplan Inc., Vista Healthplan of South Florida Inc. and Vista Insurance Plan Inc., offers a choice of health benefit plans, including health maintenance organization (HMO), preferred provider organization (PPO) and pointof-service (POS). Reach Joseph at (954) 858-3000 or through VISTA's Web site,

© 2005 Smart Business Network Inc. Reprinted from the November 2005 issue of Smart Business Broward/Palm Beach.

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