Trends in Employer-Provided Prescription-Drug Coverage: Prescription-Drug Costs Have Been Rising Faster Than the Rate of Inflation; Although Coverage Remains an Integral Part of Employee Health Care Plans, Covered Employees Share a Greater Portion of the Cost of Prescription Drugs and Are Being Offered Cost-Saving Incentives More Than Ever Before

By Dietz, Elizabeth | Monthly Labor Review, August 2004 | Go to article overview

Trends in Employer-Provided Prescription-Drug Coverage: Prescription-Drug Costs Have Been Rising Faster Than the Rate of Inflation; Although Coverage Remains an Integral Part of Employee Health Care Plans, Covered Employees Share a Greater Portion of the Cost of Prescription Drugs and Are Being Offered Cost-Saving Incentives More Than Ever Before


Dietz, Elizabeth, Monthly Labor Review


Prescription drugs are an integral part of the high-quality health care those living in the United States have come to know. More than 60 percent of Americans fill at least one prescription annually. (1) U.S. expenditures on prescription drugs reached $162.4 billion in 2002, more than 10 percent of the total spent on all health care. (2) From 1993 to 2003, while the general rate of inflation remained relatively low, medical care costs continued to rise rapidly, with prescription-drug costs one of the contributing factors. (3) Chart 1 depicts the Consumer Price Index (CPI) growth rates in the prices of prescription drugs and medical supplies, all medical care, and all items over the 1993-2003 period.

As one of the main sources of health coverage in the United States, private-sector employers are striving to contain the cost of employee medical plans and, along with them, the cost of prescription-drug coverage. Employers have implemented a variety of methods to stem the rising costs of providing such coverage. This article examines Bureau of Labor Statistics (BLS, the Bureau) data on employer-provided prescription-drug coverage and discusses how cost-saving methods have emerged over the past decade.

Data considerations

Since the late 1970s, the Bureau has produced information on the incidence and detailed plan provisions of employer-provided medical benefits. The most recent data are from the benefits portion of the 2002-03 National Compensation Survey (NCS), a forerunner of which was the Employee Benefits Survey (EBS). Among the differences between the NCS and the EBS are that (1) the 1993, 1995, and 1997 EBS data cited in this article represent full-time workers in private establishments of 100 or more workers, (2) the 2000 NCS data pertain to full-time workers regardless of establishment size, and (3) the 2002-03 NCS data represent all private-industry workers regardless of establishment size or part- or full-time status. (4) Despite these differences, there is still enough similarity in the surveys for a valid comparison of prescription-drug coverage over the 10-year period examined. Given the relatively small portion of part-time workers that have prescription-drug coverage, (5) it is unlikely that prescription-drug data for part-time workers have much impact on estimates for all workers. As for the difference between the surveys in the scope of the establishment size, the pattern of prescription-drug provisions tends to be similar in larger and smaller establishments. For example, the 1996 EBS data on full-time workers in establishments with fewer than 100 workers were similar to the 1997 data on full-time workers in establishments with 100 or more workers. (6) Also, the 2002-03 NCS benefits data show that the percentage of workers with prescription-drug coverage is similar in larger and smaller establishments. (See table 1.)

Prescription drugs in the economy

U.S. aggregate spending for prescription drugs more than tripled over the 1993-2003 period. (7) Two main factors drove the increase in expenditures: rising prices and increasing utilization of prescription drugs. As regards the first factor, the average price of a prescription rose from $22.06 in 1990 to $45.79 in 2000. (8)

Although this price rise, most notably for newly marketed drugs, accounted for 29 percent of the increase in spending, growing consumption was responsible for the bulk of the increase. (9) From 1992 to 2002, the number of prescriptions purchased increased 74 percent (from 1.9 billion to 3.3 billion), while the U.S. population grew 12 percent; the average number of prescriptions filled per person per year increased from 7.3 to 11.6. (10) With an aging society, a longer average lifespan, and the increasing use of prescription drugs to treat chronic illnesses and an expanding scope of maladies, expenditures are expected to continue to rise rapidly, reaching $445.9 billion, or 17 percent of all personal health care spending, by 2012. …

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Trends in Employer-Provided Prescription-Drug Coverage: Prescription-Drug Costs Have Been Rising Faster Than the Rate of Inflation; Although Coverage Remains an Integral Part of Employee Health Care Plans, Covered Employees Share a Greater Portion of the Cost of Prescription Drugs and Are Being Offered Cost-Saving Incentives More Than Ever Before
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