Overall health care costs continue to soar. But annual inflation in drug costs is at its lowest rate in 30 years--just 1% over the last 12 months according to this recent article in the New York Times.

What's up on the drug front?  One word - Generics.   First the good news - Generics made up 63% of prescriptions in 2006, up 13% over 2005.  Also, generics have come on the market for several blockbuster drugs--Zocor, Ambien, and Norvasc.  Finally, the Wal-Mart effect continues to have an impact as Wally World launched a program to offer discounted generics, with retailers like Target and Kmart following suit.

Now for the bad news - Even though drug price inflation has slowed, overall spending on drugs has not. The government estimates Americans will spend $275 billion on drugs this year, and that the number will reach $500 billion within ten years.  So even though your unit cost is decreasing through the use of generics, your employees are going to use more drugs moving forward.  Like Huey Lewis, they want/need a new drug...

That'll keep the pressure on HR Pros and Benefit Administrators to keep costs at bay moving forward.  I'll post more in the future about some additional tools beyond drug formularies to keep the lid on Rx costs, including generics for free at selected retailers (if Wal-Mart only charges $4, why even charge employees?  Might as well say "free" to offer the right marketing message and get employees to use the lowest cost channel) and the nuclear option, forced mail-order.

I'll end the drug talk with this note.  You think everyone could agree that decreasing cost without impacting benefit levels is a good thing, right?  WRONG.   To see how politics can be involved, read up on the recent AFL-CIO allegation that G.M. and 20 other corporations with board members who were directors or executives of drug or health insurance companies failed to move their companies to newly introduced generics in a timely fashion.  I'm never a big fan of what labor's selling, but this is one of those things "that makes you go hmmm.."