How Healthcare Works Together: Where Insurance Premium Dollars Go

The way money moves through the health insurance system – and healthcare in general – can be confusing. There are so many terms that need defining and explanation, and it’s easy to walk away wondering how treatments are actually paid for.

It's important to us that you know where money goes after it's collected. This will give you a clearer picture of how your monthly health insurance premium funds medical procedures, prescriptions, and preventive services.

The Life of a Health Insurance Claim

How does money really move through the healthcare system?

• When a member (you) receives care or services from a doctor, a hospital, an urgent care center, a pharmacy, or any other provider, that provider submits a claim (a request for payment for the care provided) to the payer (us).
• The payer determines how much of the claim is covered, based on the coverage provided by your health plan benefits, how much you’ve already paid that year, and whether the provider is in network.
• You receive a bill, whether for a copayment (a fixed amount for a specific service), coinsurance (the percentage of the cost you pay for coverage after you’ve paid your plan’s annual deductible amount), or other out-of-pocket costs if you haven’t reached your out-of-pocket maximum for the year. After that maximum is met, the payer handles 100% of the cost of covered services.

How Your Premium Payment Funds Healthcare

Healthcare is a large, diverse ecosystem. From preventive care and medications to emergency room and urgent care costs, physical therapy to mental health sessions, everything runs on funds collected by payers. You pay a monthly premium, which is taken from your paycheck if you’re covered through work or paid directly if you fund your own health insurance.

We’re serious about ensuring the money we collect from our members goes directly to care, in line with our mission of service. This means minimizing the amount that goes anywhere else.

We’re a nonprofit organization, which means we don’t have shareholders to consider. Our administrative costs, taxes, fees, and contributions to member reserves come to just 11.2% of premiums.

Here’s what each of those categories means:

• Retail Prescription Drugs (15%): Medications distributed through pharmacies or online.
• Drugs in Hospital (5.7%): Medications administered at a hospital.
• Inpatient Hospital (13.8%): Hospital charges and services patients receive while admitted.
• Outpatient Hospital (32.7%): Care provided by a hospital or other facility for patients who don’t stay overnight.
• All Other Medical (21.4%): Doctor’s office visits, mental health services, physical therapy, lab work, preventive care, and all other costs not associated with hospitals or medications.
•  Administration (6.2%): Blue Cross VT employee salaries, facilities, technology, and care coordination for our members, alongside the costs of maintaining our provider network and coordinating with other Blue Cross plans for nationwide coverage.
• Taxes and Fees (1.3%): State taxes and fees, along with federal Affordable Care Act fees.
• Member Reserve Contributions (3.7%): Money set aside to ensure we will be able to pay claims, no matter what.

Member Reserves: What They Are, Why They Matter

Many healthcare spending items have clear names: prescription drugs, hospital fees, tests, even taxes. But what are member reserves? This is money that insurers are required by law to set aside in a fund to ensure coverage continues, even when conditions become tough.
In the case of a catastrophic event – for example a flood or a pandemic-level outbreak of disease – claims will still need to be paid. Having the member reserve means there won’t be a break in coverage. As a member, your medical needs will still be met.

Your Confidence Matters

It’s important to us that you don’t feel like we’re hiding any part of our operations or costs from you. We’re Vermonters helping Vermonters, and we believe you deserve to know what you’re getting when you pay your insurance premium. Your trust in us isn’t something we take for granted – it has to be earned, day after day.