NCPA - National Center for Policy Analysis

Drug Prices Main Factor In Rising Health Care Costs

November 14, 2000

Overall health costs for services covered by private insurance rose 6.6 percent last year, according to a report in the journal Health Affairs. Spending on prescription drugs, which increased 18.4 percent, was 44 percent of the increase in health care costs.

Authors of the report, compiled by the Center for Studying Health System Change, warned that inflation is back after several years of low growth in health insurance premiums. They called the resurgence in health-care costs alarming.

In addition to increases in spending on drugs, other components of health spending also climbed in 1999.

  • Per capita spending on doctors' services among those with health insurance rose 5.2 percent.
  • Hospital outpatient services jumped 8.4 percent.
  • Hospital inpatient services increased just 0.6 percent.
  • The report said that about one-third of the increase in drug spending last year was attributable to higher prices -- with the remainder due to higher sales volumes, the introduction of new medicines and increased use of existing drugs.

Representatives of the pharmaceutical industry pointed out that prescription drugs are often the most effective and least costly way of treating illnesses.

Following four years in which premiums for typical private health insurance increased on average only 2 percent per year, last year premiums jumped an average 8.3 percent for all business and 7.5 percent for companies with 200 or more workers.

Source: Robert Pear, "Rise in Health Care Costs Rests Largely on Drug Prices," New York Times, November 14, 2000; Christopher Hogan, Paul B. Ginsburg and Jon R.Gabel, "Tracking Health Care Costs: Inflation Is Back," Health Affairs, November/December 2000.

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