AHIP: Medical costs, prescription drugs dominate premium dollar spend

A new analysis out of America's Health Insurance Plans contends that member premium costs directly reflect the price of medicine, providing a cent-by-cent breakdown of how each premium dollar pays for healthcare.

According to AHIP, which is the biggest insurer trade group and the industry's primary lobbyist, 83% -- or 83 cents -- of every typical premium dollar is spent on healthcare costs such as hospital services, prescription drugs, doctor visits and outpatient care.

These findings come as the nation stares down yet another year of rising medical costs.

A June analysis from PricewaterhouseCoopers predicted a 9% increase in the medical cost trend next year, representing the highest trend in nearly two decades.

Industry groups anticipate some of that cost increase will be absorbed via premium hikes, with KFF predicting double-digit rate increases for Affordable Care Act Marketplace plans and professional services firm Aon expecting at least 9.5% uptick in employee health benefit costs.

The AHIP data uses average costs for the 2022-2024 benefit years across employer-sponsored and Marketplace plans. According to the organization, the data underscores the market power drug manufacturers and health systems have accrued.

For example, 40.7 cents of every premium dollar goes toward hospital care, including 17.1 cents for inpatient hospital costs, 20 cents for outpatient hospital costs and 3.6 cents for emergency department costs.

Another 12 cents of every premium dollar goes toward doctor visits, while 7 cents go toward ambulatory surgery, labs and other outpatient care, AHIP said.

Meanwhile, prescription drug costs represent 23.6 cents of every premium dollar.

"As many hospitals and brand drugmakers continue to raise prices, health plans are negotiating substantial savings and working to shield consumers from the full impact of those increases," Mike Tuffin, AHIP president and CEO, said in a press release. "Common-sense, bipartisan reforms are needed to curb the market power of consolidated hospitals and brand drugmakers, and to stop the abuse of surprise-billing arbitration by a small number of PE-backed, out-of-network providers."

The organization contends that administrative costs and company profits represent relatively little of overall premium expenses. Taxes and fees represent 3.1 cents of every premium dollar, while "other administrative expenses" represent 4.5 cents and profit represents 2.5 cents. Quality improvement is the smallest spend category, representing 0.7 cents of every premium dollar.

Notably, cost containment programs -- which might include prior authorization, although AHIP is not explicit about that -- accounts for 2.5 cents of every premium dollar. Payer groups like AHIP state that cost containment and utilization management help to reduce overall costs and ensure appropriate care, but healthcare professionals have decried the practice as delaying patient access to essential services.

Sara Heath is an executive editor at Xtelligent Healthcare Media, where she covers patient engagement, healthcare policy and health IT.