Magazine article Drug Topics

Are Drug Costs to Blame for Health Premium Increases?

Magazine article Drug Topics

Are Drug Costs to Blame for Health Premium Increases?

Article excerpt

Are pharmaceutical costs being made the "scapegoat" for the increases in managed care premiums? A medical economist in Denver, J. D. Kleinke, thinks they are. But others, especially executives associated with managed care programs, disagree.

Kleinke is a consultant to technology companies as well as to physicians and other medical groups. He is the author of Bleeding Edge: The Business of Health Care in the New Century, in which he foresees the eventual passing of managed care.

There is no question that premiums in most managed care programs are going up-by as much as 15% in some cases-after several years of small or no increases. It is also true that expenditures by drug plans are rising by as much as 20%, and many of the plans are pointing the finger at these higher costs as one of the justifications for the premium increases.

"There are a variety of things that are contributing to the increases," said Mary Sevon, RPh., MBA, president of Sevon Associates and a consultant to managed care organizations in pharmaceutical care. "But the drug portion is the most visible because it has increased at such a high rate compared with other things ... and that's why [premium increases are] being blamed on drugs."

Kleinke, however, contends that such blame is not warranted. Even if the 20% rise in pharmaceutical expenditures is accurate, that represents only a small percentage of the medical-loss ratio for the insurance companies and cannot justify the size of the premium increases, he said.

"Most medical costs are stable," he noted. "Hospital prices aren't going up, doctor prices are going down-probably enough to offset the drugs-which means that, at the end of the day, the medical loss ratio is completely stable.

"They [the plans] are using drugs as a scapegoat for bigger strategic and financial incentives of the HMOs," he went on. "It's their need to generate margin for their shareholders to get back in Wall Street's favor."

One set of figures would seem to lend some support to Kleinke's contention. Aetna's total costs per member per month (PMPM) rose from $109.45 in September 1997 to $110.27 in September 1998 (less than a 1% increase) for its commercial plans.

An Aetna representative said, however, that the PMPM figures do not tell the whole story. "By all accounts," said Joyce Oberdorf, v.p.-corporate public relations for the company, "medical costs nationwide went up in the 4% to 6% range," so premium increases in the 5% to 7% range make sense when one considers the increase in medical costs. …

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