Understanding how your health insurance works can be confusing. Blue Cross and Blue Shield of New Mexico wants to demystify it. After all, when you understand how health insurance works, you can make decisions that are best for you and your family.

Some of the biggest questions are about the cost of care. Knowing where your health care dollar goes may affect the way you buy health insurance next year. It might even inspire you to tuck away extra savings to cover unexpected health care expenses.  

Rising prices for health care affects all of us. So let’s break down the costs to make it more transparent.

Where Do My Health Care Dollars Go?

Most of the cost for your care is covered by your health insurance premiums or employer. Today, in the U.S., the majority of every dollar paid in premiums actually goes to pay directly for health care. The largest percentage — 42 cents — goes to hospitals simply because that’s where the most expensive care happens. Prescription drugs capture the second largest chunk at 21.5 cents. Doctors get 12.1 cents of every dollar. Other health care services and related expenses account for nearly all the rest. Only three cents of every dollar is profit.

What Makes My Health Care Costs Go Up?

Most of us feel the pinch of rising health care costs. Yet, many of us don’t know what’s behind the increases. One reason is prescription drug costs. The price of prescription medications has increased at a much faster rate than inflation over the past seven years.

Emergency care is another reason. Many people still go the emergency room for non-emergencies — even though that’s the most expensive way to get care.

Ongoing costs related to people who have chronic health conditions that require a lot of care is another big driver. Even if you’re healthy, your premium is pooled with other members. Pooling premiums ensures we can cover health care costs for all members. For example, if one member needs a heart transplant, it takes premiums from 350 members to cover the cost of one heart transplant.

Balancing Rising Costs

When health care costs go up, insurers have to find ways to make ends meet so all the health care bills get paid. They work closely with health care providers to reduce costs. Still, insurers may have to adjust premiums in the coming years. Making the health care system work means hospitals, doctors, drug companies, insurers and consumers have to work together. We all play a role. We all have a stake in making it work.

Want to know more? Read “Where Do My Health Care Payments Go?”

Originally published 6/1/2016; Revised 2022