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• Frequently asked questions about premiums and costs

Frequently asked questions about premiums and costs

Where does my premium dollar go?

Company-wide, 86.3 percent of Regence members' premium went to pay medical claims in 2010. The remainder covered administrative services, paid agent/broker commissions, contributed to state high-risk insurance pools and paid taxes. In most years, we also add to our reserves. See what Regence members get for their premium dollar.

• The Patient Protection and Coverage Act, federal health care reforms passed in 2010, requires 80-85 percent of premiums go toward payment of medical claims, under a revised method of calculating this figure, called "medical loss ratio."

How much of my premium goes to administrative costs?

In 2010, just over 8.6 cents of every premium dollar funded administrative services. The largest component is payroll for the 6500 employees who provide important member services like claims payment, care management, wellness support and fraud prevention to Regence members. Learn more about administrative costs.

How much of my premium goes to profits?

Regence is nonprofit. We have no shareholders to pay. Our focus is on making just enough to fulfill our promise to members to pay their claims today and in the future.

As a nonprofit, we operate on a low "net margin," or the amount over and above paying claims and administrative costs. which fluctuates over time. Over the past decade, our annual net margin averaged just 0.8 percent of each premium dollar. Compare this to other industries, within and outside the health care sector.

What is "surplus?"

All insurers have reserves or "surplus" (the accounting term)-from unemployment insurance and worker compensation insurance to health insurance. Insurers are required by law to hold minimum reserves, and are expected by state regulators to hold well above that minimum. Surplus is essential to a company's financial solvency. Even before the critical point, state insurance divisions may step in to exercise additional oversight, as is happening now in Massachusetts.

Insurance is a cyclical business, and in down years, surplus helps offset losses. Surplus is the safety net that protects policy holders in times of extraordinary demand and allows Regence to remain in business to fulfill our normal obligation to members.

As a nonprofit, Regence accumulates reserves slowly over time and carefully maintains strong reserves because this is our primary source of capital for improvements, unlike for-profits that can raise funds by selling stock.

Are insurance premium rate filings public information?

That depends on where you live. Each state makes its own rules about access to these documents.

Regence operates in four states. In Oregon the state allows our rate filings to be posted on the insurance department's website. In Washington, portions of the rate filings are online, also. In Idaho, the state considers the entire filing to be proprietary and confidential information. In Utah, residents may file a formal request to see the rate filing, with some portions blacked out as proprietary and confidential.

All state insurance department websites can be accessed through the National Association of Insurance Commissioners.

Health plans file rate change information—along with data to explain and support the requested rate change—with the state insurance commissioner, who makes the filing available for inspection. States generally have oversight for individual and small group coverage. Self-insured groups such as employers are not covered by state regulation, although they may contract with a private insurer to administer their coverage.

I wasn't sick. Why did my rate go up?

Most people didn't get sick, but many did. Even those who aren't "sick" use medical services, such as annual physicals, lab tests and routine screenings. Nearly half the population takes at least one prescription medication. Our 2.3 million members averaged claims of $3,600 apiece in 2010, totaling $7,000,000,000 (that's billion).

Groups and individuals purchase health insurance to pool their funds and transfer the risk of high medical costs to Regence. The law of averages means that some of the people will face a serious medical event, and their costs are spread among all the people in the pool.

Even if you didn't personally face a big health risk this year, others in your pool did. You are helping to share their cost, just like they'll be there to help you.

Why did my rate go up more than your "average" increase?

We file an "average" rate increase of a certain percentage. Because of the many factors that can affect an individual's premium, members will see adjustments on either side of the average.

• Age. You might have reached a new age level. Insurers are allowed to assess risk, and age is a risk factor. Depending on the rules in your state, you might get an automatic increase every year or five years.
• Benefits. There might have been a change in your family status—more dependents, for example; or in your benefit package, such as deductible or copay.
• Regulation. The state legislature may have implemented a new coverage requirement for insurers, such as requiring coverage of preventive screenings like mammograms. For more information, see this report detailing coverage mandates for each state.

Learn how health insurers set premium rates

Why do health insurance rates rise faster than inflation?

There's inflation—and there's medical inflation. See a chart comparing medical prices to general inflation between 2009 and 2010.

Just like everything else in the economy, prices of medical goods and services increase every year. We negotiate for our members to get a price break with doctors, hospitals, pharmacies and other providers of goods and services, but their prices go in only one direction: up.

Additionally, there's the effect of "utilization," a fancy word for how much health care we use. With medical breakthroughs on procedures and medications, we use more and costlier services. As our society lives longer with more diseases, we use more medical care overall.

Increased cost of goods and services plus increased utilization is called "medical trend" or "medical inflation"—and it rises faster than overall inflation.