Drugs, Docs, Hospitals Gobble 82 Cents of Every Premium Dollar, AHIP Says

As healthcare prices escalate and the public looks for answers, America's Health Insurance Plans has launched a publicity campaign that it says breaks down how a premium dollar is spent.

Spending on hospitals, doctors and prescription drugs account for more than 82 cents of every premium dollar, according to statistics compiled by America's Health Insurance Plans.

"Plans use a meaningful part of premiums to make coverage more efficient and effective," Matt Eyles, incoming president and CEO of AHIP, said in a media release.

"But as prescription drug prices and medical costs continue to rise, it forces premiums higher for hardworking American families. Health plans work hard to negotiate lower costs and premiums for their members," he said. 

AHIP based its findings on commissioned research from Milliman, which examine 2014-2016 data gathered from commercial health plans.

Here's the AHIP breakdown:

• 23.2 cents pays for prescription drugs.
   
• 22.2 cents pays doctors, and an additional 20.2 cents pays for all other costs at doctors' offices and clinics.
   
• 16.1 cents pays for hospital stays.
   
• 4.7 cents pays federal, state, and local taxes.
   
• 2.3 cents goes to health insurance provider profits.
   
• 1.8 cents pays for customer engagement, including customer service operations; another 1.6 cents pays for care management, including disease management and wellness programs.
   
• 1.6 cents pays for activities related to claims, including programs to battle fraud, waste and abuse.

Ashley Thompson, senior vice president of public policy analysis and development at the American Hospital Association, said she's not surprised that prescription drug costs account for a large part of the premium dollars.

"Even so, this study does not account for the amount hospitals and health systems spend on escalating drug prices, which continues to increase," she said.

Thompson pointed to a 2016 study conducted by the Non-Partisan and Objective Research Organization at the University of Chicago for AHA which found that inpatient drug spending per admission increased 38.7% from 2013 to 2015.

"It is clear that hospitals and health systems are feeling this pressure as they work to make care more affordable for patients," she said.

However, Holly Campbell, deputy vice president of public affairs at PhRMA, dismissed AHIP's study as a tired attempt to deflect blame for rising healthcare costs.

"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," Campbell said.

"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. Not medical inflation, but overall inflation. Last year, these rebates and discounts totaled $130 billion," she said.