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January 5, 2021

How Revenue is Spent at Priority Health (Michigan)

by Anne Paddock

Priority Health (PH) is a tax-exempt, non-profit health insurer with a million members throughout Michigan. With three shareholders (Spectrum Health System (93.3%), Munson Healthcare (5.5%), and McLaren Northern Michigan (0.6%), PH  reports having 17 voting members of the governing body, 12 of whom are indecent. The Form 990 (2018) lists 19 directors (two are part year), of which 12 (63%) are male and 7 (37%) are female.

reports having no employees although the organization is staffed with employees at Spectrum Health System who are leased back to PH. Compensation is allocated to PH via a management fee.

Whether you’re a member, prospective member, or just curious about how insurance premiums are spent, this post will tell you how PH spent the premiums (revenue) in 2018. However, it is important to understand that both the insurance benefit provider (PH) and the medical provider (Spectrum Health System) are run by the same people even though they are separate non-profits.  PH is selling the insurance for an HMO or senior market and the care is provided by Spectrum Health System, so the costs are somewhat controlled because one entity is controlling both parts of the health service (the insurance and the benefit).

In 2018, PH reported total revenue of $3.2 billion, of which $1.7 billion came from HMO premiums and $1.5 billion came from “senior markets” (which appears to be Medicare).

Expenses totaled nearly $3.1 billion in 2018 with $2.7 billion spent on benefits to or paid for members. The remaining expenses (about $400 million) include compensation ($166 million), shared services and management fees ($74 million), and other expenses ($133 million).

The bottom line is that PH collected $3.2 billion in premiums from members in 2018. They spent nearly $2.7 billon (85% of revenue) on benefits. $373 million (11% of revenue) was spent on organization expenses (primarily compensation, shared services/management fees, taxes, office-related expenses, etc). $123 million (4%) remained unspent and was added to the general fund which had a year-end balance of $760 million. In other words, every $100 in revenue was spent as follows:

 $100:  Revenue

-$ 85:  Benefits

$ 15:  Revenue Remaining

-$ 11:  Organization Expenses (primarily compensation and shared services/management fees)

$  4:  Revenue Remaining:  To General Fund

To read the IRS Form 990 (2018) for Priority Health, click here.

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