This publication examines the causes of rising health care costs and analyzes how health insurance premium dollars are being spent. Health insurance premiums are growing at a reduced rate, despite increased utilization and higher costs, while health insurance plans' efforts are easing drug cost increases.
The study which was prepared by PricewaterhouseCoopers (PwC) on behalf of America's Health Insurance Plans (AHIP), found that premiums increased 8.8 percent between 2004 and 2005, which is 36 percent lower than the 13.7 percent increase a similar report found in 2002.
Higher utilization of services accounted for 43% of the increase, fueled by factors such as increased consumer demand, new and more intensive medical treatments and defensive medicine, as well as aging and unhealthy lifestyles. Price increases in excess of inflation accounted for 30% of the increase and were impacted by movement among purchasers to broader-access health plans, provider consolidation, increased costs of labor and higher priced technologies.
The report found that 86 cents out of every premium dollar go directly towards paying for medical services. Embedded within the 86 cents are the costs of medical liability and defensive medicine, which are estimated to be ten cents of the premium dollar. The report also breaks down the extent to which each major utilization service is being affected by medical liability and defensive medicine.
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