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Drug costs: A big chunk of your insurance premium

Written by Diane Archer

A new article in Health Affairs reports that drug costs at Harvard Pilgrim Health Care, a commercial insurance company, account for 25 percent of its total spending on health care. That means drug costs represent nearly one in four of your premium dollars. (Some of your premium dollars go to administrative costs.)

Already, the cost of prescription drugs ranks as one of the top policy concerns for Americans, as they should. Drug prices are escalating at a dramatic clip and an increasing number of people are struggling to afford needed medications. Harvard Pilgrim reports a 25 percent increase in its drug spending in the five years between 2011 and 2016. In 2011, drug costs represented 20 percent of its total spending.

Put differently, in 2011, per member per month prescription drug spending was $81. In 2016, per member per month prescription drug spending was $101.

The national health expenditures report indicates that the US spent $338 billion on retail drugs in 2017.  And, we spent another $151 billion on physician-administered non-retail drugs. That’s $489 billion out of a total of $3.3 trillion in health care spending. By comparison, we spent a bit over $1 trillion on hospital care in 2017.

Harvard Pilgrim has about one million members in four states in the northeast. Spending on prescription drugs has grown significantly in large part because of the ever-rising prices for specialty drugs–drugs that treat cancer and hepatitis C, among others. The quarter of their spending dedicated to prescription drugs includes retail drugs and drugs administered in outpatient settings but does not include drugs administered in hospitals, nursing facilities and other inpatient settings. And, the studies’ authors say the spending on prescription drugs is net of rebates and refunds.

Increases in specialty drug costs have been astronomical. Non-specialty drug spending rose an average of 4 percent. Specialty drug spending rose an average of 92 percent. For enrollees who needed specialty drugs, specialty drugs represented 30 percent of all health care spending, an average of $1,092 per member per month health plan spending in 2016.

Here’s more from Just Care:

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