Prescription Drug Costs Growing Faster than Any Other Costs in Healthcare

As you probably know by now, the cost of healthcare is rising faster than inflation, which means that the amount you pay for healthcare takes a larger and larger bite out of your income every year, especially when compared to the other stuff you buy. But what part of healthcare is most responsible for these growing costs?

A new study from AHIP and research firm Milliman looked at a range of data including three years of insurance claims to determine where your healthcare dollar is going.

The largest part of your premium dollar, almost a quarter, is going to prescription drug costs, followed by doctor services, outpatient services (office and clinic visits) and hospital stays.

This is an update of a report AHIP published last year, so we can look at how these numbers have changed. As we know, healthcare costs are rising across the board, but it is interesting to see, as a percentage of the whole, which costs are rising most quickly – and which are actually falling.

Cost

2017*

2018*

Percentage point change*

Prescription Drugs

22.1%

23.3%

+1.2 ↑

Office & Clinic Visits

19.8%

20.2%

+0.4 ↑

Hospital Stays

15.8%

16.1%

+0.3 ↑

Doctor Services

22.0%

22.2%

+0.2 ↑

Insurance Profit

2.7%

2.3%

-0.4 ↓

Insurance Operations

17.8%

15.8%

-2.0 ↓

In the report from last year, the money flowing to prescription drug makers and doctors was about equal. While both have increased, prescription drugs went up over a percentage point, while doctor services had a more modest, 0.2 percentage point gain.

On the good side, insurance operations (for the sake of simplicity, we scooped up all those purple and orange bars and grouped them together as “Insurance Operations.” These are insurers’ costs for managing our plans and upgrading technology, including taxes), are gobbling up less of our premium dollars.

To be clear, this does not mean that costs are necessarily going down in any part of the healthcare system, but it does show the relative rate at which they are rising. Prescription drugs have the dubious honor of taking more and more of your money, faster and faster.

*(There’s some rounding going on here, which is why these numbers don’t add up to exactly 100%.)