Drugs Increase Healthcare Costs In 1999 - Government Activity - Brief Article

Healthcare Financial Management, Jan, 2001

Almost half of healthcare cost increases in 1999 were due to increased prescription drug spending, according to a study by the Center for Studying Health System Change, Washington, D.C. Healthcare costs rose 6.6 percent in 1999, up from an average increase of 2.4 percent per year from 1993 to 1997. Although the 1999 healthcare cost increases are substantial, they followed a pattern similar to prior years, with sharply higher spending for drugs and hospital outpatient services, but smaller changes in hospital inpatient spending.

Of the total 1999 cost increase, 44 percent was for drug costs, with one-third of this increase due to higher drug prices and the rest due to new drugs and cost increases among existing drugs; 32 percent was for physician fees; 21 percent was for hospital outpatient spending; and 3 percent was for hospital inpatient costs.

The period of low increases in health insurance premiums is over, according to the study. Premiums rose 8.3 percent in 2000, compared with an average per-year increase of 2 percent between 1994 and 1998. The 2000 increase signifies a return to premium increases that exceed underlying cost increases and a willingness among insurers to sacrifice market share to restore profitability.

One consequence of premium increases being greater than cost increases is the incentive for employers to self-insure. With a 9.6 percent increase in premiums for fully insured plans compared with a 7.1 percent increase for self-insured plans in 2000, the number of employees enrolled in self-insured plans rose from 48 percent in 1999 to 51 percent in 2000.