June 1, 2018

When you spend $1 on health insurance premiums, here's what you get

Daily Briefing

    Prescription drug spending accounts for the largest share of health insurance premium costs, according to an analysis released last week by America's Health Insurance Plans (AHIP).

    June 11 webconference: 5 things you need to know about specialty pharmacy strategy

    For the analysis, researchers from AHIP and Milliman reviewed commercial health plan data from 2014 to 2016. The data included health plans people enrolled in through their employers and through the individual market.

    Findings

    The researchers found that spending on prescription drugs and physician services accounted for nearly 50% of premium costs from 2014 to 2016. In particular, the researchers found that for every dollar consumers spent on a health insurance premium from 2014 to 2016, insurers spent about:

    • 23.2 cents on prescription drugs;
    • 22.2 cents on physician services;
    • 20.2 cents on other costs associated with doctors' offices and clinics;
    • 16.1 cents on hospital stays;
    • 4.7 cents on federal, state, and local taxes;
    • 3.3 cents on business expenses and other fees;
    • 2.3 cents toward health insurance provider profits;
    • 1.8 cents on customer engagement, including customer service operations;
    • 1.6 cents on care management, including disease management and wellness programs;
    • 1.6 cents on activities related to claims, including programs to battle fraud, waste, and abuse;
    • 1.6 cents on technology and analytics;
    • 0.7 cents on administration, including human resources and legal offices; and
    • 0.5 cents on provider management.

    Reaction

    Matt Eyles, incoming president and CEO of AHIP, said, "Plans use a meaningful part of premiums to make coverage more efficient and effective, but as prescription drug prices and medical costs continue to rise, it forces premiums higher for hardworking American families." Eyles added, "Health plans work hard to negotiate lower costs and premiums for their members," and said AHIP "support[s] a lot of the great work being undertaken by Congress, the [Trump administration], and the states to improve health care costs and benefits."

    Craig Burns, vice president at AHIP's Center for Policy and Research, said, "What's quite surprising is that the prescription drug piece has really started to separate from the rest of the health care expenditures."

    But Ashley Thompson, senior vice president of public policy analysis and development at the American Hospital Association, said she is not surprised prescription drug spending accounted for a large share of premium costs, noting that the analysis "does not account for the amount hospitals and health systems spend on escalating drug prices, which continues to increase."

    Holly Campbell, deputy vice president of public affairs at Pharmaceutical Research and Manufacturers of America, said the analysis represents an effort by AHIP to attribute rising health insurance costs to other segments of the health care industry. Campbell said, "AHIP continues to compare list prices for medicines to net prices for hospital and physician services to advance their same old rhetoric and exaggeration on medicine costs." She added, "We saw the slowest growth in medicine spending last year—just 0.6%. And prices for brand name medicines grew just 1.9% on average after discounts and rebates, below the rate of inflation" (Morse, Healthcare Finance News, 5/22; Stankiewicz, FierceHealthcare, 5/22; Commins, HealthLeaders Media, 5/23; Heath, PatientEngagementHIT, 5/23; AHIP release, 5/22).

    Next: 5 things your organization must do to manage care around high-cost drugs

    Join us on Monday, June 11 at 1 pm ET to learn how the specialty pharmacy landscape is changing and what health systems must do to manage care around these high-cost drugs.

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