Non-drug medical costs accounted for 70 percent of average health premium increase in 2005

Increased spending on physician services was the largest single contributor to the 8.8 percent average health premium increase in 2005. Outpatient hospital services such as diagnostic testing accounted for 22 percent of the increase followed by inpatient hospital services which accounted for 18 percent. Prescription drugs added 16 percent to the increase followed by other medical services at 6 percent.

The analysis of factors driving health premium increases concluded that increased spending on medical services is responsible for 86 percent of the overall increase while non medical costs such as claims processing, provider support and marketing compliance and industry profits (3 percent) account for the balance of the increase. Further analysis shows that increased utilization due to population aging; the availability of new treatments and technologies; lifestyle issues such as increased obesity; more intensive diagnostic testing; and defensive medicine due to liability concerns are major factors driving drug utilization growth.