How Your Health Care Dollar is Spent

Here’s how the non-profit Blue Shield of California says it spends each health care premium dollar it receives:

(Image: Blue Shield)

(Image: Blue Shield)

What’s significant here is that Blue Shield says it’s spending 85 percent of your dollar on medical care. This is right in line with a requirement of health care reform which has already gone into effect, the “medical loss ratio.” The MLR requires large employer plans to spend 85 percent of revenue on patient care. If they spend less, they must issue a refund to members. Blue Shield also has capped its income (i.e. profit) at two percent. It has pledged to return any income above two percent to its members.

  • Donnabjorn

    The 2% at Blue Shield is noted as “income”. I thought that Blue Shield was under legal mandate to keep a certain percentage of their monies in something called reserves. These reserves are kept on hand so the company can continue to pay out benefits in case of shortage of revenue. Is that what the 2% is? Or is it in the 13% administrative costs?

    • Lisa Aliferis

      I asked Blue Shield and here’s their reply: “Amounts we earn that aren’t spent on operations are saved and placed in reserves. Reserves are used to pay for unforeseen medical claims (in the case of a pandemic or natural disaster, for example), plus investments such as upgrades to our health information systems or projects to improve customer service and healthcare quality. Reserves are not part of income (shown as 2%) or administrative costs (13%).” So then I asked if the reserves are pulled out in advance of the above calculation and am waiting for a reply.