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May 19, 2020

How Revenues (Your Premiums) are Spent at Physicians Health Plan

by Anne Paddock

Physician’s Health Plan (PHP) is a non-profit, tax-exempt 501 (c) (4) – a social welfare organization whose contributions received are not tax-deductible – based in Lansing, Michigan. According to PHP:

Physicians Health Plan began in 1980, when Sparrow Health System (the sole member of PHP) and a group of visionary physicians began developing mid-Michigan’s first broad-based independent practice association (IPA), a type of health maintenance organization. An IPA is made up of a network of local physicians, hospitals and other professionals who deliver a full continuum of care. In 1982, PHP introduced its first products to the market. Today PHP remains a subsidiary of Sparrow, and it has more than 3,100 practitioners and 31 hospitals participating in its provider network.

People often wonder how their monthly premiums (the average monthly healthcare premium in Michigan is $416 or about $5,000 annually, according to are spent. If you are a member of PHP, your premiums were primarily (85%) spent on benefits paid to or for members. However, looking at specific line item expenses provides more detail of how revenue was actually spent.

In 2017, the IRS Form 990 reports PHP reported total revenue of $200 million and total expenses of $187 million (not including $2 million in depreciation, which means the organization spent $13 million less than they collected.  Specific expenses are listed as follows:

  • $170 million (85% of revenue):  Benefits paid to or for members
  • $  7 million (4% of revenue):  Compensation
  • $  5 million (3% of revenue):  Fees for Services (primarily outside management fees)
  • $  2 million (1% of revenue):  Office-Related Expenses
  • $  2 million (1% of revenue):  Broker Commissions
  • $  1 million (less than 1% of revenue):  Miscellaneous Expenses

As illustrated above, the single most significant expense was for benefits paid to or for members. 85% of revenue was spent on member benefits.  Compensation for the 115 employees was the second largest expense at $7 million which equates to an average compensation of $61,000.  12 employees received more than $100,000 in compensation. The third largest expense – fees for services – at $5 million is primarily management fees and appears to be to a related and/or affiliated organization.

It is important to note PHP had $68 million in their general fund (which some people may refer to as the endowment). Even though PHP spent less than they collected in 2017, the general fund balance was $10 million less at year end, at $58 million, because PHP paid a $20 million dividend to its sole member, Sparrow Health System).

Using the above information, every $100 in revenue was spent as follows:

$100:  Revenue

-$ 85:  Benefits paid to or for members

$ 15:  Revenue Remaining

-$  4: Compensation

-$  3:  Fees for Services

-$  1:  Office-Related Expenses

-$  1:  Broker Commissions

-$  9:  Subtotal (compensation, fees for services, office, and commissions)

$  6:  Revenue Remaining:  To General Fund

If your monthly premium was $416, then your premium was spent as follows:

$416:  Monthly Premium

-$354:  Benefits paid to or for members

$ 62:  Revenue Remaining

-$ 17:  Compensation

-$ 12:  Fees for Services

-$  4:  Office-related Expenses

-$  4:  Broke Commissions

-$ 37:  Subtotal (compensation, fees for services, office and commissions)

 $  25:  Unspent Revenue: To General Fund

As illustrated above, most revenue is spent on benefits paid to or for members.

To read the IRS Form 990 (2017), click here.

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