The U.S. House and Senate is debating drug-pricing legislation this fall. A Kaiser Family Foundation (KFF) report released Sept. 25 and a new post at Arkansas Business provide more evidence that this focus is misplaced.
Health insurance and hospital cost growth far outpace rises in drug prices.
As Axios explained, the KFF paper shows “employer insurance has become increasingly unaffordable over the last decade.” Specifically, according to KFF, the average cost of employer-provided family health insurance rose 5 percent this year to a record $20,576. Family premiums have risen 22 percent over the last five years and 54 percent over the last decade. KFF notes those increases are “significantly more than either workers’ wages or inflation.”
Premiums are not the only cost that is outpacing inflation or wage growth. Axios noted that, while workers’ earnings rose 26 percent from 2009 to 2019, deductibles increased 162 percent.
As premiums have increased, the percentage of smaller companies offering health insurance to their workers has declined. In 1999, 81 percent of businesses with 10 to 199 workers offered health insurance to their workers; in 2019, only 71 percent did. For firms with fewer than 10 workers, the percentage has declined from 55 percent in 1999 to 47 percent this year.
In a post this week, Arkansas Business also proved that growth in other types of health-care spending far outpace the rise in drug prices.
Between 2010 and 2017, for example, spending on prescription drugs rose 4 percent. Spending at doctors’ offices and clinics increased 4.4 percent, while spending at hospitals rose 4.8. In the 1970s, drug prices rose 8.2 percent while spending on hospitals increased 14 percent and spending with physicians increased 12.8 percent.
As Arkansas Business shows, drug prices rose higher than the other two categories in the 1980s and 1990s, but why?
Innovation.
A Health Affairs article from late 1998 discussed the “rapid pace of innovation” in the United States in the late 1980s and throughout the 1990s. The article noted:
- Spending on health research and development (R&D) rose from 3.2 percent of total health expenditures in fiscal year (FY) 1986 to 3.5 percent in FY 1995. During the same term, health R&D spending as a fraction of total R&D spending rose from 12.5 percent to 20.3 percent.
- Industry R&D spending as a percentage of U.S. pharmaceutical sales rose from from 11-12 percent in the 1970s to 21 percent in 1997.
- During the mid-1990s, the number of annual drug approvals by the Food and Drug Administration (FDA) “was higher than average over the previous ten years.”
- In 1997, there were 316 new medications in the FDA’s approval pipeline.
The private sector, not government, was the primary driver of the new investment seen in the 1990s. According to the Health Affairs article, the government’s share of total spending on health research fell from 53.2 percent in FY 1986 to 44.2 percent in FY 1995.
The Arkansas Business report also explains that spending on hospitals and physician services account for more than half (53 percent) of all U.S. health care spending in 2017. Spending on prescription drugs amounts to only 10 percent.
Since 2000, more than 500 new medicines have been approved by the FDA. Instead of attacking the innovators behind these advancements, Congress should examine the industries that eat up most of our health-care dollars.