Where do our health insurance premiums go?

Do you know where your health-insurance premiums go?

Fifteen years ago, the answer to that question was easy. Whether you got insurance from a for-profit insurer, a nonprofit insurer or Medicare, the answer would about the same: 95 percent of your premiums (or, in the case of Medicare, your tax dollars) went for health-care benefits.

Fast forward to now and things are very different.

At the largest for-profit insurance companies nationwide, an average of only 81 percent of our premiums go to health care. The percentages for the largest Pennsylvania for-profit insurers, Cigna and Aetna, are 81.5 percent and 81.9 percent. For the two largest nonprofit insurance companies in Pennsylvania, Highmark Blue Cross Blue Shield and Independence Blue Cross, they are 87.9 percent and 88.3 percent.

The percentage for Medicare remains unchanged: 95.

Why has the portion of our premium dollars that actually deliver health care dropped so far so fast?

The health insurance industry has changed dramatically.

In the past, insurers tried to maximize the number of policyholders in order to spread the risk of illness among the largest number of people possible. Administrative costs were low because almost everyone who applied received insurance. Insurance companies spent little on marketing and sales because employers provided most insurance and there was little reason for people to switch from one company to another.

This changed as health-care costs began to escalate and as computers gave insurance companies the ability to predict who would become ill.

Today, insurers make money by managing who they insure and adjusting premiums to risk. They spend a great deal to sell insurance to younger and healthier people. And they have created huge administrative structures to deny coverage to people who might need expensive medical care or to charge such people higher premiums. When all else fails, they use technicalities to deny health care to people who get sick or to drop their coverage.

So one reason a declining share of our premiums goes to health care is that the health-insurance industry puts much more money into sales and administration than it did 15 years ago. The other reason is that this new approach has led to huge increases in profits. The profits of for-profit health insurers jumped 428 percent between 2000 and 2007.

To stay in business, nonprofit insurance companies have had to adopt the same practices. Indeed, much of the insurance written by nonprofit companies today is actually provided by for-profit subsidiaries. This transformation has made a once socially beneficial industry into a predator industry. And we all pay the price.

Insurance premiums have been increasing at twice the rate of wages. Deductibles and co-pays have been going up, too. Every year the percentage of people receiving health insurance at work drops. People who think they have good insurance find out too late that it doesn’t cover treatments or procedures they need or has a yearly or lifetime cap that is far too low.

As more and more people lose health insurance, everyone suffers. Eight to 12 percent of health-insurance premiums and substantial tax dollars go to pay for the expensive yet inadequate health care received by the uninsured.

We can move part of the way back to the old model of insurance by enacting the reform legislation before the House and the Senate. These bills prohibit insurance companies from denying people coverage or charging them more on the basis of their medical history or if they are women of child-bearing age. They also limit age-based premium differentials.

But that is not enough. The insurance companies’ relentless opposition to real health-care reform and to the competition that would be created by a public option shows us that they will not change their practices willingly.

That’s why an amendment introduced by Sens. Jay Rockefeller, D-W.Va., and Al Franken, D-Minn., is so important. It would require insurance companies to put 90 percent of our premium dollars into health care instead of administration, marketing or profit.

The Franken-Rockefeller amendment would not take us back to the good old days of 1993. But it would give us some assurance that most of our health-insurance premiums are actually paying for health care. Together with new insurance regulations, it would be a major step toward restoring a business model that makes our health, not insurance-company profits, its top priority.