Benefits November 14, 2000

Drug Expense Fuels Spike in Health Costs

November 14, 2000 (PLANSPONSOR.com) - Nearly half - 44% - of the increase in health care costs last year were associated with pharmaceutical costs, according to a new study.
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The study, published in the November/December issue of Health Affairs, reveals that a third of the drug-related cost increase came from higher drug prices, while the remaining two-thirds was due to new drugs, and the use of existing drugs, according to BNA’s Pension and Benefits Daily.

The study reveals that health care costs rose 6.6% overall last year, up from an average increase of 2.4% per year from 1993 to 1997.

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Hospital costs accounted for just 3% of the increase, while physician services spending accounted for 32% and spending for hospital outpatient services accounted for 2%.

Health insurance premiums increased 8.3% in 2000, compared with average annual increases of just 2% between 1994 and 1998.  However, different plan types experienced different growth rates:

  • Health maintenance organizations (HMO) premiums increased 9.4% for fully insured plans, 4.5% for self-insured plans
  • Preferred provider organizations premiums increased 10.9% among fully insured plans, 7.4% among self-insured plans
  • The percentage of employees enrolled in self-insured plans increased from 48% last year to 51% in 2000

Health Affairs is a bimonthly health policy journal published by Project Hope.

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