Where Does Your Premium Dollar Go?

Where Does Your Premium Dollar Go?

Our Thinking / Healthcare /

Where Does Your Premium Dollar Go?
Calendar14 June 2018

The data from AHIP on how a premium dollar is spent is both insightful and thought provoking. About a quarter of each dollar is spent on prescription drugs. Now your first instinct might be to say that’s too high -- and Rx trends are high -- but I recall a conversation with an economist from a major pharmaceutical company who told me their pricing philosophy was based on the premise that prescription drugs are one of two primary treatment modalities – with surgery being the other one! He argued that the more we spend on Rx, the less we will spend on health care overall. So is the 23.3 cents too high, too low, or just right? These are complex questions, which deserve our time and effort to answer.

The AHIP data is from a health plan’s perspective. What does your company’s spend on health program and services look like when you break it down into various categories? How much do you spend on wellness vs. condition management vs. network steerage? Companies can benefit by assessing their spend by category against their opportunities, ensuring that investments are properly prioritized. The insights generated can lead to decisions that will increase investments in certain areas and reduce expenditures in others. This exercise becomes critical as innovation in health care accelerates and new offerings emerge, with most providing benefits. But you don’t have unlimited resources. So use the AHIP data to inspire you to take an inventory of where your expenses are coming from and determine if they are in the right proportion. This will help you find the optimal strategy for your company.

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