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Prescription drug costs drive increase in health care expense

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A sharp surge in prescription drug costs helped push health care costs for families covered under an average employer's health insurance plan up an estimated 6.3% in 2015, according to a new report by Milliman Inc.

The total cost of health care coverage for a family of four under an employer-sponsored PPO plan — including premiums and out-of-pocket expenses — rose to $24,671 on average, reversing the streak of declining annual growth rates witnessed during the previous four years, the Seattle-based actuarial firm said Tuesday in its annual “Milliman Medical Index” report.

The report's authors said the increased growth of health care costs for employer PPO-covered families — compared to a 5.4% rate of annual growth in 2014, the lowest in more than a decade — was due primarily to a 13.6% rise in prescription drug costs from 2014 to 2015 that resulted from the introduction of new specialty drugs, price increases on brand-name and generic prescriptions and an increase in the use of compound medicines.

“A combination of forces is creating the perfect pharmaceutical storm,” the report's authors wrote, noting that prescription drug costs account for approximately 15.9% — or $3,913 per family — of total annual health care costs for employer PPO-covered families. “Employers and families alike feel the financial consequences more than ever when a prescription is filled.”

The report also notes that employees and their families are shouldering a greater share of the cost of their health care than at any point since the passage of the federal health care reform law, and that their portion of the costs is growing at a faster annual rate than employers' portion.

Milliman's report estimates that employers pay approximately 57.5% of the total cost of family coverage in 2015, compared with 59.4% in 2010, and that the annual growth rate of employees' combined premiums and out-of-pocket expenses has outpaced employers' year-over-year cost growth by as much as 1.3% in each of the last five years.