High healthcare costs driven by spike in Rx costs

A significant spike in prescription drug costs helped drive up healthcare costs for families covered under an average employer's health insurance plan an estimated 6.3% in 2015, according to the Milliman Medical Index (MMI) report.

The 2015 spike resulted from the introduction of new specialty drugs as well as price increases in both brand and generic name drugs, increases in use of compound medicines, and other causes, according to the MMI.

Related: Hep C, cancer drugs make up bigger percentage of Rx costs

In 2015, the cost of healthcare for a typical American family of 4 covered by an average employer-sponsored preferred provider organization (PPO) plan is $24,671, according to the MMI. The growth rate of 6.3% in 2015 is up from last year’s 5.4% growth rate, driven primarily by an increase in pharmaceutical costs. Prescription drug costs spiked significantly, growing by 13.6% from 2014 to 2015.  This is significantly higher than the growth over the previous 5 years, which averaged 6.8%.  Drug costs now make up roughly 15.9% of the annual healthcare expense of a typical family of 4, at $3,913 a year. 

Hart“Until recently, prescription drugs have not materially altered the trajectory of the costs for our typical family of 4,” according to Sue Hart, principal and consulting actuary at Milliman. “In 2015, the trend in this component of healthcare costs is significant enough to impact the overall index. This heightens the need to control costs in this area.” 

Since the MMI’s inception in 2001, prescription drugs have increased by 9.4% on average, exceeding the 7.7% average trend for all other services.

“There are many signs that drug costs will continue to see upward pressure, given the dynamics at play in the market,” Hart said.  “Employers and families both need to make changes if they hope to mitigate the financial impact.”

Related: Covered California imposes price caps on specialty drugs

Formulary managers should consider design formularies to encourage consumerism and assist families to limit their out-of-pocket costs and continue to assess formulary design to control costs, Hart advised.

“Formulary adjustments have been a major driver in rebate increases that many payers are receiving to offset rising pharmacy costs, and as such, paying close attention to optimizing the formulary to lower costs, while maintaining clinical appropriateness, is very important,” she said.

Related:2014 drug costs soar, no end in sight

The MMI is derived from Milliman’s flagship health cost research tool, the Health Cost Guidelines, as well as a variety of other Milliman and industry data sources, including Milliman’s MidMarket Survey. 

2015 Milliman Medical Index