Human Capital & Careers

Specialty Drugs Drive Health Care Cost Trend

Health benefits costs are forecast to climb 5% next year, thanks in part to fast-rising prices for specialty pharmaceuticals.
David McCannAugust 9, 2016
Specialty Drugs Drive Health Care Cost Trend

Were it not for the skyrocketing cost of specialty pharmaceuticals, next year’s rate of increase in health care costs for large companies could be among the lowest since 2000.

According to reports released Monday by Willis Towers Watson and Tuesday by the National Business Group on Health (NBGH), overall health benefits costs (the cumulative total borne by employers and those passed to workers) for such companies are projected to increase by 5% in 2017.

That figure incorporates changes to health plan design that employers are expected to make to help keep health care cost hikes at bay. Without those changes, such costs would rise by 6%, both organizations say.

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According to NBGH’s annual surveys of large employers, the expected increase for 2017 is about the same as that experienced in the past few years. Willis Towers Watson data, on the other hand, shows health cost hikes as having hit a nadir since the turn of the century of about 4% from 2013 to 2015, so the 5% rise forecasted for next year represents an uptick.

In this year’s NBGH survey, for the first time, specialty pharmaceuticals were identified as the biggest driver of health costs. Among 133 respondents, 80% placed such drugs as one of the top three cost drivers, followed by high-cost claimants (73%) and specific diseases and conditions (61%).

In addition, 31% of the NBGH survey participants specifically identified specialty drugs as the top culprit in rising costs. As recently as 2014, only 6% of those surveyed did so.

Pharmaceutical costs, which on average account for 15% to 20% of employers’ medical spending, are rising twice as fast (about 10%) as overall health costs, according to multiple published reports. But a majority of that rise is attributable to the specialty drug category. Many drugs for treating cancer and other severe conditions now cost $10,000 a month or more.

In the Willis Towers Watson survey of 600 employers, which collectively have about 12.2 million full-time workers, 88% said managing pharmacy spending generally or high-cost specialty drugs specifically will be their top health care cost management priority over the next three years.

Already, 61% of the responding organizations have added programs to ensure the appropriate use of high-cost drugs, and an additional 24% are considering doing so by 2018.

Clamping down on drug costs is among several actions companies will prioritize next year in the battle to hold back rising health care tabs, according to Willis Towers Watson.

“In 2017 employers will focus primarily on changing coverage provisions for costly services,” said Julie Stone, a national health care practice leader for the firm, in a news release. “These include more restrictive pharmacy benefits, the continuing addition of surcharges for working spouses and dependent coverage, and offering incentives to encourage employees to use centers of excellence for specialty services.”

Meanwhile, the chief executive of NBGH, Brian Marcotte, pointed out in a release that the cost increases companies are expecting for 2017 are far less than those projected for insurance purchased through a public health exchange.

“Current estimates have health insurance premiums for the average public exchange plan increasing by at least 10%, about twice what large employers are projecting for next year,” Marcotte said. “This is a clear indication that the employer-based health care model continues to be the most effective way to provide health insurance coverage to employees and their families.”