Despite what the insurance industry claims, prescription medicines are not the drivers of insurance premium costs.
AHIP – the national association representing insurance companies – regularly releases the so-called premium dollar, purporting to show how much of each insurance premium dollar is spent on different health care services.
Although the insurance industry and their pharmacy benefit managers (PBMs) continue to peddle the myth that prescription medicines make up the largest share of every dollar spent on health care, they twist the data to get there. When you properly account for the share of spending that goes to brand pharmaceutical manufacturers vs. generic manufacturers and supply chain intermediaries, brand medicine spending is about 45% less than what is spent on insurer administrative costs and profits.
In a new infographic, we set the record straight using their data:
- Brand medicines account for less than 10 cents of every premium dollar. Just 9% of every insurance premium dollar goes to innovative medicines, while less than 3% goes to generic medicines.
- Hospitals take up nearly half of every dollar spent on insurance premiums. Hospital costs eat up the lion’s share of insurance premiums, 47.8% of each $1 in insurance premiums.
- Insurance companies spend more money on overhead than medicines. Roughly 16 cents of every $1 in premiums go to insurance overhead expenses like administrative costs and profits. Insurance overhead is the second largest category of premium costs, exceeding medicine spending and doctor visits.
The facts show that medicines are a small share of each premium dollar while other parts of the system drive up spending. AHIP’s report twists the data to give a false impression by:
- Breaking up money that flows to insurance companies, such as administrative expenses, profits, and other overhead costs, into multiple categories.
- AHIP also divides the hospital industry into three separate categories – inpatient, outpatient, and emergency room.
- Meanwhile, AHIP lumps brand manufacturers, generic manufacturers, and supply chain intermediaries such as wholesalers and middlemen - like PBMs and insurers - into one giant category.
- AHIP doesn’t acknowledge that insurers increasingly own PBMs, due to the rise in vertical integration practices, which consolidates control over who manages prescription drugs and contributes to opaque pricing structures.
Getting the facts straight is an important step to adopting the right solutions.
The American people need reforms that will help make health care – including lifesaving medicines – more affordable by addressing the real drivers of spending. That’s why we are advocating for policy reforms that take on vertically integrated insurers, middlemen, and bureaucracy that are driving up costs in the system.
To learn more about PhRMA’s solutions to lower drug costs for patients and protect access to innovative medicines, visit phrma.org/our-agenda.
Caroline Dunne
Caroline Dunne serves as a Director of Public Affairs at PhRMA, where she leads communications strategies and initiatives for the organization's cost and value priorities. She brings extensive experience in advocacy strategy, with a background that spans gubernatorial and presidential politics. Caroline is passionate about contributing to an industry whose innovations have had a meaningful impact on her family's life.