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New Avalere Study: Drugs Not Major Drivers Of Premium Growth, Dispels Insurance Industry Myth

August 2, 2016
Today, Avalere Health published a study that further dispels the pervasive myth that prescription drugs are a major driver of increased health insurance premiums.

It is, in fact, outpatient spending and professional services that are the largest drivers of insurance premium growth—not prescription drugs, which represent only about 14 percent of premium growth.  Outpatient spending accounts for 29.9 percent of 2017 premium increase justifications. While professional services account for 27.7 percent. This data comes from insurance companies’ own reporting.

As Avalere’s Senior Vice President, Caroline Pearson, writes:
“Prescription drugs represent a smaller portion of rate increases than their share of overall healthcare spending based on proposed rates made by individual and small group plans across the nine states analyzed. Specifically, drugs are responsible for 14.3 percent of premium growth in 2017. This is lower than 2015 claims experience, which shows plans spent 17.7 percent of total medical spending on drugs.”

Many in the insurance industry and the media would have you believe the opposite: that drug prices are the reason you’re paying more for your insurance. That’s simply not true.

A previous 2015 study from Avalere came to the same conclusion after researching the insurers’ own data. It also confirmed that two-thirds of premium increases are directly attributed to hospitals and doctors—not prescription drugs. And a recent IMS study showed the net price for patented, branded drugs increased only 2.8 percent in 2015—that’s in line with inflation.

Despite the insurance industry’s seeming insistence on a refrain of tired and erroneous assertions about the drivers of rising healthcare costs, the facts are clear.