Gap widening between premiums paid in, benefits paid out for health insurance

TORONTO – If it feels like you are paying more for and getting less from your extended health insurance, you are not mistaken.

A new analysis shows that the gap between premiums paid in and benefits paid out has widened substantially in the past 20 years.

The study says that difference rose to $6.8 billion in 2011 from $1.2 billion in 1991 for health plan providers in Canada that operate on a for-profit basis.

That $6.8 billion figure is the portion of the premiums paid by companies and workers that is retained by the insurance companies.

Lead author and health economist Michael Law says he cannot tell from publicly available data whether the extra money is going to higher dividends for shareholders or higher administrative costs.

The analysis is published today in the Canadian Medical Association Journal.

Law’s study notes, though, that the gap between premiums and benefits has stayed relatively constant for plans held by large companies which self-insure.

In those programs, the employer pays any benefits claimed; the health plan company they contract with simply administers the plan.

The data suggest small companies and individuals who buy health insurance for themselves fare the worst here.

“There’s little question in my mind that this market is not functioning well for small employers and individuals, says Law, an assistant professor at the University of British Columbia’s Centre for Health Services and Policy Research.

“When you’re running a business with 10 employees, you don’t have the time or the knowledge to effectively negotiate with a huge insurance company.”

Law says the system needs greater transparency, so it is easier to see what companies and individuals are getting for the premiums they pay.

He also suggests governments should consider closer regulation of the industry, noting that the Affordable Care Act in the United States sets a limit on the percentage of premiums that can be retained by an insurer for administrative costs and shareholder compensation.

Law and his co-authors based their analysis on industry data drawn from the annual reports of the Canadian Life and Health Insurance Association. They twice asked the association for additional information; the first request was refused and the second drew no reply.