Prescription Costs Going Up

November 1999

Increases in promotion and demand blamed

Health care costs, after several years of hibernation, appear to be rumbling upward again. But the rise in health care costs is nothing compared with what’s happening to prescription drug costs. Consider the following statistics that give some indication of why prescription drug costs are getting to be a cause for concern.

• Amount of money spent last year on prescription drugs — $93.4 billion.
• Amount of money pharmaceutical manufacturers spent last year on advertising their drugs to health professionals — $7 billion.
• Amount of money pharmaceutical manufacturers spent last year to promote their drugs directly to consumers — $1.3 billion.
• Four drug categories — antihistamines, antidepressants, cholesterol reducers, and anti-ulcerants — accounted for about 31% of the total $42.7 billion increase in spending from 1993 to 1998. Incidentally, these four drug categories contain seven of the 10 drugs that were advertised most heavily to consumers in 1998.
• The 10 most highly advertised drugs accounted for $9.3 billion or about 22% of the total increase in drug spending between 1993 and 1998.
• Generics only accounted for 8% of prescription drug sales in 1997.

Source: National Institute for Health Care Management Research and Educational Foundation

LTC costs can burden families

A recent survey by the National Council on the Aging found that failure to plan for long term care (LTC) is causing American families to make unplanned sacrifices such as using children’s college funds or foregoing job advancement to cope with LTC needs of family members.*

In the survey, 93% of parents said they would not want their children to pay for their care by using their grandchildren’s education funds. Yet, 50% of adult children said they would dip into college savings to pay for their parents’ LTC needs, and 12% of those providing financial assistance for LTC said they had already dipped into personal funds to pay for LTC.

Those who were providing financial support to pay for care reported that they were paying a median amount of $300 a month. More than 10% of those providing assistance were paying more than $1,000 a month. Adult children are much more willing than their parents realize to raid their own retirement funds or sacrifice job advancement to pay for their parents’ LTC care, according to the survey.

The ‘triple squeeze’

The survey also found that LTC is replacing child care as a major worry for older baby boomers. In fact, boomers are facing the triple squeeze: They are worried about the costs of raising a family, concerned about their parents’ long term care needs, and starting to recognize their own likelihood of needing LTC in later years.

However, not many are doing much about LTC, partly because of confusion over what it is. Many people erroneously believe that LTC costs are covered either by their health or disability plan, or that the government will help them with such expenses. There are also misconceptions about what LTC services will cost.

LTC refers to a range of personal, custodial, and social services provided to people who are unable to care for themselves. LTC is provided for chronic conditions and differs in several ways from acute care. The distinction is important because it determines how care is paid for and where it is available. Acute care requires the services of a physician, nurse, or other skilled medical personnel, often in a hospital. Its goal is recovery.

Acute care is covered by health insurance plans. The goal of custodial or maintenance care, on the other hand, is to help physically or cognitively impaired people do everyday things, prevent injury to themselves and others, and sustain them over relatively long periods of time. Such care is not covered under health plans or by disability plans.

There is a government program — Medicaid — that pays for LTC. But the program is meant for those who have little or no assets, and it requires people to deplete most of their assets before it pays their LTC bills. Most costs for LTC are paid by individuals who need LTC or by their families.

Not everyone will require LTC or be faced with the expenses associated with it. But it’s important to learn about LTC at an early age and develop a plan for dealing with it.

* Survey conducted by The National Council on the Aging and John Hancock Mutual Life Insurance Company.

Posted November 3, 1999