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High Drug Prices Account for One-Quarter of Patient Insurance Costs

An AHIP analysis revealed that high drug prices are taking up a considerable portion of a patient's premium and insurance costs.

high drug prices

Source: Thinkstock

By Sara Heath

- The majority of a patient insurance costs go toward paying for prescription drugs, with high drug prices accounting for 23.2 cents of each dollar spent on an insurance premium, according to a recent analysis from America’s Health Insurance Plans (AHIP) and research firm Milliman.

The analysis of commercial health plan data from between 2014 and 2016 revealed each of the categories patients’ healthcare dollars go toward. The analysis specifically looks at how premium costs are distributed. This comes as a part of AHIP’s efforts to increase healthcare price transparency for patients who are paying increasing amounts for their health insurance.

The finding that most of a patient’s premium costs go toward prescription drug prices confirms growing industry concerns about rising drug costs. As it stands, patients are facing increasing out-of-pocket costs for their prescription medications. The finding that patients are also footing the bill for medications via their insurance premiums highlights just how much patients must pay to access their treatments.

Other costs associated with patient health plan premiums include healthcare and treatments themselves, the analysis revealed.

Patients pay 22.2 cents to pay their doctors and 20.2 cents to cover other costs associated with doctor’s visits. Those associated costs include equipment and supplies, salaries for nursing assistants and administrative staff, and other overhead costs such as office rent and electricity.

About 20 cents go toward hospital stays, including costs associated with hospital room and board, hospital equipment and supplies, salaries for nursing staff and other personnel, and general hospital overhead costs.

Patient premiums also cover smaller costs for health payer plans. Nearly five cents go toward state and federal taxes payers must pay, while 3.3 cents cover overhead insurance business expenses.

Nearly two cents go to cover consumer engagement, which includes customer service, marketing, and other advertising costs. Another 1.6 cents go toward care management and wellness programming targeted toward activating patients in their own care. As payers continue to focus on better consumer experiences and overall wellness initiatives, it may be possible that costs for consumer engagement will increase.

Just over one cent on the dollar for premium costs go toward claims management, including denials, programs to prohibit fraud, and waste. Less than one cent goes toward provider engagement.

In the end, insurance companies see 2.3 cents in net profit for each premium dollar spent by a patient.

These results highlight the work health payers have done to improve the care beneficiaries receive, according to Matt Eyles, the president-elect and CEO of AHIP.

“Americans value services that deliver real results – improving health and wellness, coordinating care with doctors and nurses, eliminating fraud and abuse,” Eyles said in a statement. “Plans use a meaningful part of premiums to make coverage more efficient and effective.”

However, the analysis also revealed the work that still needs to be done by both payers and other industry stakeholders, especially as it pertains to drug pricing.

“As prescription drug prices and medical costs continue to rise, it forces premiums higher for hardworking American families,” Eyles noted. “Health plans work hard to negotiate lower costs and premiums for their members. We need to come together to find new ways to provide people with the care they need at a price they can afford.”

Congress and the current Administration has already begun work to make health payer coverage more affordable for beneficiaries, Eyles said.

For example, the Administration recently published a blueprint for reducing prescription drug prices for patients. While the blueprint did not relate to the costs covered under a patient’s premium, it did address the costs patients have to pay in addition to their premiums.

Healthcare professionals must continue their work to reduce payer coverage costs for patients, Eyre stated.

“We support a lot of the great work being undertaken by Congress, the Administration and the states to improve health care costs and benefits, including more support for services that help people stay healthy,” Eyre concluded. “And insurance providers have invested in many new approaches to improve their members’ health – as well as the prices they pay. We will continue to work hard toward the goal of affordable coverage and care, so that every American can have the peace of mind of knowing that a health care emergency won’t break the bank.”

 

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