BITTER PILL? – New Study Predicts Prescription Costs to Rise Sharply

July 19, 2000 ( - Prescription drug costs are expected to increase nearly 25%, and overall medical costs 12.2% over the next year, but most large employers plan to maintain their current proportion of medical costs with active employees, according to a new study by Watson Wyatt Worldwide and the Washington Business Group on Health.

Want a New Drug

The study indicates that the cost of prescription drug benefits offered by large employers is expected to rise an average of 22.5% for active employees, and nearly a percentage point higher (23.4%) for Medicare retirees over the next year.

According to Rich Ostuw, global practice director of group and health care consulting at Watson Wyatt. “Prescription drug costs are continuing to escalate due to introduction of expensive new medicines, the
aging of the population, and the aggressive direct-to-consumer marketing that stimulates patient demand.”

On the Rise

A 12.2% increase is anticipated for overall medical costs, with the largest increase coming from point of service programs (13.7%), followed closely by preferred provider organizations (PPOs) with a 13.3% rise.

HMOs are expected to jump 11.8%, while the average increase in dental benefits should total 7.6%.

Generally speaking, costs are about a percent higher for Medicare retirees across the board. However, HMO costs are anticipated to be 2% higher (13.8%) and dental more than 2% lower (5.5%).

Splitting the Difference

Despite the increased costs, only 12% of employers plan to shift a higher percentage of the cost to employees. Over half (57%) will maintain the current cost-sharing arrangements with employees, and nearly a third will absorb a disproportionate share of the cost increase, according to the survey.

The survey was based on responses from 61 companies covering 1.7 million employees.