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Factors Fueling Rising Health Care Costs

Many factors within the health care system contribute to rising costs. It’s an issue that requires a broad and collaborative search for answers and continues to challenge health care insurers and consumers.

The Factors Fueling Rising Health Care Costs 2006, a report prepared by PricewaterhouseCoopers on behalf of America’s Health Insurance Plans (AHIP), examines cost drivers in the health care marketplace and analyzes how health insurance premium dollars are being spent.

Some findings of the report:

Increases in health care delivery costs were a significant factor in overall increases.
  • Physician spending and hospital inpatient spending increased by more than 7.5 percent.
  • Outpatient spending, such as diagnostic testing, grew at a rate of 13.6 percent.
  • Prescription drug spending increased 8.6 percent.
Premiums increased 8.8 percent between 2004 and 2005.
  • Higher utilization accounted for 43 percent of the increase, fueled by factors such as consumer demand, new medical treatments and defensive medicine, aging population, and unhealthy lifestyles.
  • Price increases accounted for 30 percent of the increase, impacted by provider consolidation, increased costs of labor, and new, higher priced technologies.
Out of every premium dollar, 86 cents go directly to paying for medical services.
  • Of the remaining premium dollar, five cents go to consumer services, including care and disease management, prevention, information technologies, provider support, and marketing.
  • Six cents go toward government fees, regulation, claims processing, and administration.
  • Health insurance plan profits comprise three cents of the premium dollar.

The study found promise in emerging programs. Health plan trends promoting provider pay-for-performance, consumer engagement, and healthy lifestyles were regarded as having potential to mitigate future cost increases.