Where do premium dollars go? Mainly to drugs and doctors

Prescription Drugs and Money image
Research by AHIP finds that prescription drugs and doctor services costs make up almost half of premium spending, an amount that even surprised researchers. (TaxRebate.org.uk)

Prescription drugs make up nearly a quarter of health insurance premium costs, with doctor visits not far behind, according to new research.

A report (PDF) released on Tuesday by America's Health Insurance Plans (AHIP) found that a hefty 23.3% of premium spending goes towards prescription drugs, an amount that even astonished researchers. 

"What's quite surprising is that the prescription drug piece has really started to separate from the rest of the healthcare expenditures," Craig Burns, vice president at AHIP's Center for Policy and Research, told FierceHealthcare. 

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The issue of ever-increasing drug prices has been in the national spotlight for some time, and it's currently a major target of the Trump administration, which is seeking to control spending at the insurer and pharmacy benefit manager level. 

RELATED: EpiPens, blood-pressure medication rank among highest drug price increases, CMS database shows

The study also found that about 22.2% of premium dollars go to physicians and doctors. An additional 20.2% goes towards other office or clinic costs, including nurses' salaries and equipment and supplies, while hospital stays make up 16.1%.

The research was conducted using data between 2014 and 2016 from five for-profit and 25 nonprofit insurer plans, which Burns said is representative of the sector as a whole. 

A separate report by Altarum pointed to hospital spending and drugs as some of the main drivers of healthcare price growth, which is currently at a record high 2.2% compared to last year. 

RELATED: Health insurance CEOs earned $342.6M in 2017

Comparing service costs between private premiums and Medicaid and Medicare is apples to oranges due to differences in billing and how spending is classified. However, it appears government payers score significantly better on operating costs.

Operating costs and taxes make up 15.9% of premium costs, the AHIP research found. Meanwhile, MACPAC has pinned operational spending under Medicaid to less than a third that, at about 5%. 

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