Drug Spending Growth Reaches 8.5% in 2015

Total spending on drugs in the United States reached $310 billion in 2015, up 8.5% from the previous year, according to a report by the IMS Institute for Healthcare Informatics. The surge of new drugs remained strong last year, and demand for new brands was high. Savings were relatively low from branded drugs facing generic competition. Price increases on brands had a limited effect due to higher rebates and price concessions from manufacturers. Specialty drug spending reached $121 billion on a net price basis, up more than 15% from 2014. (Net-price spending does not relate to a patient’s out-of-pocket costs or the amount health plans pay for drugs. It estimates the amount received by pharmaceutical manufacturers so it reflects rebates, off-invoice discounts, and other price concessions that manufacturers make to distributors, health plans, and intermediaries.)

Manufacturers are accepting lower price increases on existing products. At the same time, spending on new brands continued at near-historic levels. Increasingly, healthcare is being delivered by different types of healthcare professionals and from different facilities while patients face higher out-of-pocket costs and access barriers. The study predicts mid-single digit growth for drug spending through 2020, driven by innovative treatments and offset by brands facing generic or biosimilar competition.

Heightened competition among manufacturers, along with more aggressive efforts by health plans and pharmacy benefit managers to limit price growth, resulted in significantly lower price increases than in prior years. The report also reveals the following:

  • Spending on specialty drugs has nearly doubled in the past five years, contributing more than two-thirds of drug spending growth from 2010 to 2015. Treatments for hepatitis, autoimmune diseases, and oncology drove increased specialty spending. The year 2015 saw a 21.5% spending increase for specialty drugs.
  • Forty-three new active substances were launched in 2015 with a third receiving orphan drug designations from the FDA. An additional 30 brands were launched last year, bringing new combination therapies, alternative dosing, and treatment administration options to patients. The strong momentum of breakthroughs and R&D productivity is reflected in the 2015 cohort of new drugs.
  • Total prescriptions dispensed in 2015 reached 4.4 billion, up 1% year over year. Demand was higher in some therapy areas, such as antidepressants and anti-diabetes, each of which increased about 10% in 2015.
  • Over the past five years, integrated-delivery networks have expanded their affiliations with healthcare professionals to increase negotiating power with insurers, save money, and drive pay-for-performance initiatives. More than 54% of healthcare professionals are affiliated with integrated-delivery networks. In the past five years, there has been a 115% increase in urgent care centers and pharmacy in-store clinics. The number of prescriptions written by nurse practitioners and physician assistants more than doubled over the past five years.
  • While brand price increases are expected to continue in the 10% to 12% range, they will be significantly offset by rebates, discounts, and other price concessions.
  • The are very bright prospects for innovative drugs becoming available through 2020. The late-phase pipeline holds 2,320 novel products, with an average 43 to 49 to be launched annually over the next five years.

Critical Illness Market Shows Continued Growth and Product Interest

Critical Illness Market Shows Continued Growth and Product Interest


The critical illness market seems to be taking off. The market saw an increase in reported new business premium of nearly $381 million in 2014 and an increase in-force premium of $1 billion on more than 3 million insured lives, according to a survey by Gen Re. A record 59 carriers, representing 95% of the market, participated in this year’s survey. Of those, 41 were marketing 73 different CI products. The remaining participants are exploring the market or gearing up to enter it.

Fifty-nine percent of carriers in the market plan to increase their focus on CI sales; 41% plan to maintain their current focus; and none plan to decrease their focus. While all market segments are expecting strong growth, the group and worksite segments are especially optimistic. They expect annual growth rates of 22% (issue age) and 30% (attained age) over the next three years. The CI industry seems to be moving in the direction of more benefit eligibility triggers with the average number increasing from 13 last year to 19 this year. Cancer remains the number one cause of claims

Medicaid Poses Increasing Risks to State Budgets

A rebound in healthcare spending and a shift in federal support will put more pressure on U.S. states’ long-term budgets, Fitch Ratings says. While state and local Medicaid spending growth will remain below historical levels, Fitch believes it will still outpace revenue growth, forcing states to make challenging budgetary decisions. Fitch expects most states to accelerate efforts to slow Medicaid spending and take other budgetary actions. If they do not, they face long-term budget imbalances.

The Centers for Medicare and Medicaid Services (CMS) expects state and local Medicaid spending growth to average 6.3% annually from 2014 to 2024. The increase is partially due to normalization after recession era rates bottomed at 5.2% in 2007, as well as the downshift in federal funding for the Medicaid expansion that will begin in 2016.

However, spending growth will remain below historical trends.  Fitch says that states have had some success in controlling growth in Medicaid spending, though the challenge remains substantial. Implementing managed care has been a key initiative for a number of states. From 2001 to 2013, Medicaid managed care spending increased at nearly double the rate of total Medicaid spending. Fitch says that the shift toward managed care is likely to continue.

Several states have reported net budgetary gains from ACA expansion that could offset those increased costs. CMS expects overall health spending growth to accelerate to 5.8% annually through 2024, up from 4% in 2007. The recession and its aftermath played a key role in suppressing costs in recent years.

Actuaries Detail the Drivers of Health Insurance Premium Changes for 2016

Actuaries Detail the Drivers of Health Insurance Premium Changes for 2016
According to a brief by the American Academy of Actuaries the following factors affect health insurance premium changes for 2016:

  • Underlying growth in health care costs, including increased spending for medical services and prescription drugs, especially as more high-cost specialty prescription drugs come to market.
  • The scheduled reduction in the ACA’s temporary reinsurance program, which means less of an offset to insurers’ costs of higher-cost enrollees.
  • The incorporation of insurer experience regarding their 2014 and 2015 enrollee risk profiles into 2016 assumptions.
  • The ACA provision expanding the small group market to include employers with 51 TO 100 employees.

Med Supp Plans Continue to Grow

Membership in Medicare supplement plans continued to increase in 2014, according to a report by Mark Farrah Associates. Medicare supplement plans covered approximately 11.2 million seniors as of December 31, 2014, a 5.2% increase from 2013. From 2013 to 2014, enrollment in Medicare supplement plans increased by 551,135 covered lives. Though UnitedHealth was the growth leader, many other insurers experienced growth in Med Supp business.

Plan F, the most popular design, enrolled more than 6 million members and accounted for 54% of the market. Membership in Plan F increased by 494,599 enrollees from 2013 to 2014. Enrollment growth was also significant in standardized plan types G and N, with increases of 141,024 and 188,256 members.

The Affordable Care Act has had little effect on Medicare Supplement business. Reforms have not imposed major plan design changes or minimum loss ratio requirements for these plans. Many carriers have sustained a significant presence in the market by selling products at competitive rates while maintaining favorable loss ratios

Report projects 5.6% medical spending growth this year

The CMS reported Wednesday that growth in mean annual health care spending is expected to reach 5.6% this year and will average 6% from 2015 to 2023. The estimates fall below earlier projections as well as the 7.2% increase seen from 1990 through 2008, but the new figures represent an increase in growth over the 3.6% estimated for 2013. Spending on prescription drugs is expected to increase by 6.8% this year, driven in part by costly new drugs for treatment of hepatitis C. The Examiner (Washington, D.C.) (9/3), Politico (9/3), USA Today (9/3), Reuters (9/3), The Hill (9/3)

Health Carriers Are Thriving Under Stress

ViceGripThe health insurance industry has been going through a number of challenges including legislative and regulatory reform, demands from more price- and service-conscious consumers, fierce competition, shift of customer mix, and uncertain economic conditions in the United Stats and abroad. Yet the industry is thriving under stress, according to a report by Zacks Investment Research.

Big players, such as CIGNA, WellPoint, Humana, UnitedHealth, Molina Healthcare and others, have reported unfaltering growth in premium as well as fees and other income over the years. In the first quarter of 2014, these insurers had a combined 14% increase in revenues. So far, the carriers have handled some of the less onerous provisions of health care reform fairly well including MLR requirements, a ban on denial of coverage due to pre-existing ailments, dependent coverage up to the age of 26, and the annual rate review.

The question is how provisions of the law will affect the industry, such as those relating to insurance exchanges, the individual mandate, ICD-10 requirements, pre-existing conditions, Medicaid expansion, and an annual insurance industry assessment of $8 billion for 2014 with increasing annual amounts thereafter. Investor sentiment toward the reform this year and beyond will be the driving factor for managed care stocks.

Several health reform provisions are likely to increase insurers’ medical costs, such as the excise tax on medical devices, annual fees on prescription drug manufacturers, enhanced coverage requirements, and the prohibition of pre-existing condition exclusions. Also, the annual insurance industry assessment will increase insurers’ operating costs.

Confined to national boundaries until recently, the industry is flocking to international markets with fewer regulations, higher margins, greater demand, and lower competition. With a wide overseas presence, Cigna and Aetna view their international business as a positive differentiator and key driver of growth. Both companies intend to penetrate deeper into the emerging economies of Asia and the Middle East. In April 2014, Aetna bought U.K.-based InterGlobal, which offers private medical insurance to groups and individuals in the Middle East, Asia, Africa and Europe. UnitedHealth expanded its reach from Australia, the Middle East, and U.K. to Brazil with its buyout of AmilParticipacoes.

Data from Kaiser Family Foundation and the Congressional Budget Office indicates rapid growth in individual exchange markets, with approximately 22 million purchasing coverage online by 2016 and 24 million by 2023. The exchanges seem to have been well received. Moreover, 35% of new exchange insurers below age 35 led to a favorable mix. Insurers that were initially averse to participating on exchanges are planning to jump on the bandwagon for 2015 and beyond. However, with comparative shopping options and easy access to consumer information, the exchanges are likely to heighten competition among private insurers. For more information, visitwww.Zacks.com.

Private Exchanges Experience Hyper-Growth

Private health insurance exchanges are experiencing hyper-growth. Accenture predicts that private health insurance exchange participation will approach public exchange enrollment by 2017, if not sooner. Enrollment figures indicate an earlier-than-expected growth spurt. Accenture estimates that there were more than 3 million people enrolled in private exchanges during the 2014 benefit year.

However, lagging back-end benefit administration capabilities may restrict the growth of some exchanges. Most employers believe that benefits are a key differentiator in the market for talent. Many tailor their benefit plans for specific sets of their workforce. This tends to be fairly simple for smaller companies, but is complex for larger companies. Benefits often vary based on workforce elements, such as full-time vs. part-time, executive vs. non-executive, and geography. These variances can influence which products are offered and how much the employer subsidizes. Although exchanges are working hard to standardize product offerings, they should offer solutions to manage these complexities. New defined contribution strategies that may very across these employee groupings compound these challenges. Changes to the employee population adds to the complexity of enrollment process. Exchanges that don’t streamline and automate enrollment and eligibility processing are likely to fail to deliver on a core promise of reduced administrative burden.

The complexity also grows as exchanges allow employers to offer more products from multiple carriers. Employers that had only offered a few plan options (typically less than three) for medical insurance, often with no carrier choice, are managing five or six medical plans from three to five carriers. There are also additional products and carriers for dental, vision, life and other types of voluntary or ancillary insurance.
With such a large volume of information, issues arise around how to pass data back and forth across organizations or how to handle exception processes and reconciliation. For more information, visitwww.accenture.com/insightdrivenhealth.

Growth in Health Spending Slows for Fourth Straight Year

slowgrowthHealth care spending grew at a record slow pace for the fourth straight year in 2012, according to a actuaries at the Centers for Medicare and Medicaid Services, published in the journal Health Affairs. In 2012 U.S. health care spending saw the fourth consecutive year of slow growth with an increase of 3.7%. The share of the economy devoted to health spending decreased from 17.3% in 2011 to 17.2% in 2012.

The Gross Domestic Product increased nearly 1% faster than health care spending at 4.6%.  Private health insurance premiums reached $917 billion in 2012, and increased 3.2%, near the 3.4% growth in 2011. The net cost ratio for private health insurance was 12% in 2012 compared to 12.4% in 2011. (The difference between premiums and benefits as a share of premiums.)

Private health insurance enrollment increased 0.4% in 2012, but still lower than in 2007. Out-of-pocket spending grew 3.8% in 2012. Private health insurance spending for physician and clinical services grew at a faster pace while Medicare spending decelerated slightly in 2012.
The following categories saw an increased spending trend:
• Hospital spending increased 4.9% in 2012 compared to 3.5% in 2011.
• Spending on physician and clinical services increased 4.6% in 2012 compared to 4.1% in 2011.
• Spending for dental services increased 3% in 2012 compared to 2.2% in 2011. Out-of-pocket spending for dental services, which accounted for 4 2% of all dental spending, increased 3.9% in 2012 compared to 3.1% in 2011.
• Spending for other health, residential, and personal care services grew 4.5% in 2012 compared to 3.3% in 2011. This category includes expenditures for medical services that are generally delivered by providers at schools, community centers, the workplace, residential mental health centers, substance abuse facilities, and by ambulance providers.
• Spending growth for freestanding home health care agencies increased 5.1% in 2012 compared to 4.1% in 2011. Medicare and Medicaid spending accounted for 81% of total home health care spending in 2012. Medicare spending grew at a faster rate in 2012 while Medicaid spending slowed.
• Medicaid spending grew 3.3% in 2012 compared to 2.4 % in 2011. Federal Medicaid expenditures decreased 4.2% in 2012 while state and local Medicaid expenditures grew 15% — a result of the expiration of enhanced federal aid to states in the middle of 2011. The relatively low annual rates of growth in Medicaid spending can be explained in part by slower enrollment grow tied to improved economic conditions and efforts by states to control health care costs.

The following categories saw a decreased spending trend or stayed the same:
• Spending for independent health practitioners of physical therapy, optometry, podiatry, and chiropractic medicine increased 4.5%, which is about the same rate as in 2011.
• Spending for freestanding nursing care facilities and continuing care retirement communities increased 1.6% in 2012 compared to 4.3% in 2011. The slower growth was primarily due to a reduction in Medicare spending due to a one-time rate adjustment for skilled nursing facilities.
• Retail prescription drug spending grew 0.4% in 2012 compared to 2.5 % in 2011. Driving the low growth were reduced retail drug prices as numerous blockbuster drugs lost patent protection and generics became available.
• Retail spending for durable medical equipment (contact lenses, eyeglasses, and hearing aids) increased 5.6% in 2012, the same as in 2011.
• Retail spending for other non-durable medical products (over-the-counter medicines, medical instruments, and surgical dressings) grew 1.8% in 2012 compared to 3% in 2011.
• Medicare spending, which represented 20% of national health spending in 2012, grew 4.8% compared to 5% in 2011. With a new payment system, there was a one-time payment reduction to skilled nursing facilities in 2012 after a large increase in 2011.

In 2012, households accounted for the largest share of spending (28%), followed by the federal government (26%), private businesses (21%), and state and local governments (18%). The federal government financed 26% of total health spending in 2012, a slight decrease from 27% in 2011. In June 2011 saw the expiration of enhanced federal funding from the American Recovery and Reinvestment Act of 2009. Since states are no longer getting additional federal government aid, they have seen their share of the health care bill increasing from 17% in 2011 to 18% in 2012. For more information, visithttp://content.healthaffairs.org/content/33/1/67.abstract.

Life Combo Products See Double-Digit Growth

GraphUpMore than 86,000 life combination policies were sold in 2012, an increase of 19% over  2011, according to a LIMRA report. Consumers under 59 held more than half of in-force polices in 2012. Sixty percent of life combination policies are insuring women. Life combination products accounted for 11% of new premium for individual life insurance.

Sales of life combination products continue to grow at a remarkable rate as new carriers enter the market and existing players refine  products to remain competitive, said Catherine Ho, LIMRA product actuary. “This segment of the market weathered the storm pretty well during the recession when individual life sales declined significantly. Now that sales growth has returned for individual life, we anticipate life combination products to continue their steady growth,” she said.

All life combination product lines experienced growth in 2012, with whole life (WL) and universal life (UL) combination premium each growing 10% and variable combination premium growing 3%. Whole life combination policy count rose 23%; UL policy count rose 19%; and variable policy count rose 4%.All but one distribution channel experienced double-digit growth in 2012 (independent RIA). Banks and savings institutions posted the largest premium growth, rising 21%; affiliated agents recorded 30% growth in policy count.

Linked benefit products dropped 1% in policy count and held only 24% of the market in 2012. These products are mostly single premium and are packaged all-in-one. Acceleration policies grew 27%, capturing 76% of the market share. These products provide long-term care benefits up to the amount of the life death benefit. For more information, visit www.limra.com.

Last Updated 05/25/2022

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