New Report Shows Slower Premium Growth, But Increasing Pressure to Address Waste in Health Care System

Prepared by PricewaterhouseCoopers (PwC) on behalf of America's Health Insurance Plans (AHIP), "The Factors Fueling Rising Healthcare Costs 2008" examines the causes of rising health care costs and analyzes how health insurance premium dollars are being spent.

This is the third study prepared by PwC. The study found that premiums increased 6.1 percent from 2006 to 2007 as compared to 8.8 percent from 2004 to 2005 and 13.7 percent from 2000 to 2001. This is a 31 percent and 55 percent reduction respectively over the previous growth rates.

"Once again PwC's report demonstrates that we have made strides in lowering costs, but more must be done to make health care more affordable and eliminate waste in the system," said Karen Ignagni, President and CEO of AHIP. "Today, the AHIP Board put forward specific policies that are designed to reduce future cost increases by more than $500 billion over five years."

The growth in health insurance premiums was driven by general inflation (46 percent), health care price increases in excess of inflation (30 percent), and increased utilization of services (25 percent).

The report also found that 87 cents out of every premium dollar go directly towards paying for medical services. Embedded within the 87 cents are the costs of medical liability and defensive medicine, which are estimated to be ten cents of the premium dollar.

Of the remaining premium dollar, four cents go to consumer services such as prevention, disease management, care coordination, investments in health information technologies and health support; provider support; and marketing. Six cents go to costs associated with government payments, regulation and claims processing and other administration. Health insurance plan profits comprise three cents of the premium dollar, unchanged since the last report.

The report found that physician spending accounts for 33 cents of the premium dollar and that it increased by 5.5 percent in 2007. Hospital inpatient spending amounts to 20 cents of the premium dollar and grew at a rate of 7.5 percent.

Fifteen cents of the premium dollar go to outpatient spending, which grew at the rate of 8.2 percent. The report noted that "This rapid and steady growth in outpatient diagnostic testing is in part driven by the practice of defensive medicine."

The study found that prescription drugs account for 14 cents of the premium dollar and that drug spending increased 5.7 percent, compared to the double-digit jumps of recent years. The report suggests that health plans' prescription benefit tools and techniques which have helped slow growth rates "offers lessons about strategies to restrain cost growth without harming quality."

While the report points to lower health care costs, it does raise an important alarm about future health care spending -- wasteful spending that adds no value or quality to the care patients receive. The report highlights the care coordination, chronic disease management, and prevention programs health plans have implemented to combat waste in the health care system. Additionally, it outlines other efforts to reduce waste such as increasing standardization and transparency; improving research on comparative effectiveness of treatments; reforming the medical liability system; promoting value based reimbursement; and enhancing health information technologies.

To view the entire PwC report, visit www.AHIP.org.

SOURCE America's Health Insurance Plans

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