Health Insurance

Pharmaceutical Spending Up 77% Over 10 Years, Yet Out-of-Pocket Prescription Drug Costs Have Fallen in Same Period

Pharmaceutical Spending Up 77% Over 10 Years, Yet Out-of-Pocket Prescription Drug Costs Have Fallen in Same Period

Prescription drugs cost more than $4,500 a year per U.S. household, but this financial burden is felt more heavily by some states’ residents.
A man looks at his prescription medicine.
A man looks at his prescription medicine. Source: Getty Images

Every year since 2010, consumer spending on pharmaceutical products — prescription and nonprescription drugs — has increased in the U.S. Specifically, prescription drug spending is up $95 billion between 2010 and 2020 — yet, out-of-pocket costs in this period are down $1 billion.

To examine drug spending changes, ValuePenguin researchers analyzed the latest data from the U.S. Bureau of Economic Analysis and the Kaiser Family Foundation at the national and state levels. Researchers also looked at prescription spending per household (by state) and more.

Key findings

  • Spending on pharmaceutical products — prescription and nonprescription drugs — in the U.S. has skyrocketed since 2010. In 2020, pharmaceutical spending topped $570 billion — a 77% increase from $322 billion in 2010.
  • In that same 10 years, pharmaceutical spending rose the most in the District of Columbia, Colorado and Texas. The increases in spending on prescription and nonprescription drugs in these states were 117%, 110% and 110%, respectively. Minnesota, West Virginia and North Dakota saw the most modest jumps at 43%, 49% and 49%, respectively.
  • Despite these increases, out-of-pocket prescription drug costs are down compared to 2010 — even with some big jumps in the middle of the decade. Costs (including copays and coinsurance) dropped from $48 billion in 2010 to $47 billion in 2020, even with a spike to $52 billion in 2015.
  • Nationally, prescriptions cost $4,571 a year per household. This is highest in Delaware at $6,513 per household; only two other states are above $6,000 — Kentucky ($6,033) and Tennessee ($6,007). The states with the lowest prescription costs per household are North Dakota ($2,772), South Dakota ($3,194) and Montana ($3,261).
  • Only 5% of prescriptions are paid for entirely out of pocket across the U.S., but it varies widely by state. A staggering 12% of prescriptions in North Dakota are completely paid out of pocket, versus 3% or less in each New England state — Vermont, Massachusetts, Connecticut, Rhode Island, New Hampshire and Maine.

How pharmaceutical spending has changed in past 10 years

Consumer pharmaceutical spending on prescription and nonprescription drugs has risen dramatically over the past decade. Between 2010 and 2020, the U.S. saw a 77% increase in pharmaceutical spending. By comparison, the Consumer Price Index — which measures the change in the price of goods and services — increased just 19% in the same period.

10-year pharmaceutical spending (prescription and nonprescription drugs) increases

2010
2015
2020
$322 billion$440 billion$570 billion

There are several possible causes for this massive upward trend in pharmaceutical spending. Robin Townsend, a health insurance research analyst for ValuePenguin, points to increases in the costs and usage of medications as likely contributors.

"Each year, we see an increase in overall prescription use, along with higher strengths and stronger dosages being prescribed," Townsend says. "Research and manufacturing costs also continue to rise, resulting in higher prices for both prescription and nonprescription drugs."

It should also be noted that the U.S. population increased by 7.4% between 2010 and 2020. While the percentage of people using prescription drugs has held fairly steady in this period, the presence of 22.7 million additional people had an impact on overall spending figures nonetheless.

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Where pharmaceutical spending has changed most in 10 years

Consumers in certain states experienced bigger pharmaceutical spending increases than others. Among the 50 states and the District of Columbia, the areas that saw the highest increases in pharmaceutical spending were:

  • District of Columbia: 117%
  • Colorado: 110%
  • Texas: 110%

In addition, pharmaceutical spending in Nevada and Arizona more than doubled in 10 years.

As a whole, the U.S. spends more on prescription drugs than other countries. According to the U.S. Government Accountability Office, U.S. prices are more than twice and sometimes even four times as high for certain brand-name prescription drugs than prices for those medications in France, Canada and Australia.

As the chart below shows, there’s a wide range of spending within the U.S. itself. Numerous factors may contribute to this phenomenon, from the age and size of a state’s population to the overall health of its residents. Each of the five states with the highest growth in pharmaceutical spending experienced above-average population growth from 2010 to 2020.

Meanwhile, the cost of individual prescription drugs can vary by state — and even between cities. Laws about prescription drug affordability may also impact the costs residents pay for medications. In 2018, the Trump administration signed legislation banning pharmacy benefit managers from imposing "gag orders" on pharmacists that prevent them from discussing other options with patients based on pricing. But the law continued to be challenged. Colorado, one of the states with the highest pharmaceutical spending increases, didn’t pass a law prohibiting pharmacy benefit managers from using this practice until 2021.

Another interesting factor to consider is that some states enter into multistate Medicaid purchasing pools in an effort to lower prescription costs for residents. Program administrators claim these pools can result in savings of 3% to 5% for participants. Colorado, Texas, Nevada and Arizona, however, are on the list of 20 states that don’t participate in such programs.

States where pharmaceutical spending rose the most

Rank
State
10-year change in total spending ($ millions)
10-year change in total spending (percentage)
U.S.$248,189.877.0%
1District of Columbia$713.0116.6%
2Colorado$4,316.5110.0%
3Texas$26,056.1109.5%
4Nevada$2,384.4104.0%
5Arizona$5,562.2101.4%
6Utah$1,886.596.0%
7Florida$15,726.992.1%
8New York$25,041.491.7%
9Georgia$8,280.488.2%
10Rhode Island$840.085.2%
11New Jersey$10,342.384.2%
Show All Rows

Source: ValuePenguin analysis of U.S. Bureau of Economic Analysis data. Note: Based on a comparison of 2020 current dollars to 2010 current dollars.

On the other end of the spectrum, the three states with the smallest spending hikes between 2010 and 2020 were:

  • Minnesota: 43%
  • West Virginia: 49%
  • North Dakota: 49%

All three of these states participate in a multistate purchasing pool to try to lower costs. However, while the population of West Virginia declined from 2010 to 2020, both Minnesota and North Dakota experienced above-average growth.

Pharmaceutical spending is up, but out-of-pocket prescription drug costs are down

Although overall spending on pharmaceutical products has skyrocketed, the out-of-pocket financial responsibility for consumers has gone down since 2010. According to data from the Peterson-KFF Health System Tracker, out-of-pocket prescription drug costs fell to $47 billion in 2020 — $1 billion less than in 2010. The decrease came after a spending spike to $52 billion in 2015.

If you look further into the past, the shift in the share of prescription costs has been even more significant. In 1960, consumers in the U.S. paid 96% of prescription costs out of pocket (including copays and coinsurance). By 2020, the consumer out-of-pocket contribution for prescriptions dropped to just 13%.

One potential cause of decreasing out-of-pocket prescription costs for consumers, says Townsend, is that access to prescription insurance has risen steadily in the U.S. in recent years. A few examples of this trend include:

  • The Affordable Care Act, which became law in 2010, has prescription drug coverage available to anyone enrolled.
  • Programs such as Medicare Part D and Medicare Advantage help reduce members’ out-of-pocket prescription drug costs. Enrollment numbers increase each year for these plans.

Low-cost health insurance is another solution that can help some consumers find coverage for prescription drug costs. Townsend also notes that patient assistance programs, which drug companies set up voluntarily, may offer free or low-cost medications to people who can’t afford them and the uninsured.

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Where households spend the most on prescription drugs

Prescription drugs cost $4,571 a year per U.S. household, according to 2019 Kaiser Family Foundation data — the latest available. (This figure is spread out across U.S. households, some of which may pay nothing, while others may pay well above this amount.)

Once again, this financial burden is felt more heavily in some states than others. The three states with the highest average prescription drug costs per household are:

  • Delaware: $6,513
  • Kentucky: $6,033
  • Tennessee: $6,007

Meanwhile, three neighboring states at the edge of the Midwest and West have the lowest average prescription drug costs per household:

  • North Dakota: $2,772
  • South Dakota: $3,194
  • Montana: $3,261

Spending on prescription drugs per household in North Dakota is less than half the amounts in the top three states (Delaware, Kentucky and Tennessee).

This chart provides more information on states with the highest and lowest prescription costs per household:

States with highest prescription costs per household

Rank
State
Total prescription costs per household
U.S.$4,571.14
1Delaware$6,512.55
2Kentucky$6,033.30
3Tennessee$6,006.82
4District of Columbia$5,450.62
5Connecticut$5,445.41
6Louisiana$5,432.42
7West Virginia$5,371.83
8New York$5,241.68
9Illinois$5,212.72
10Alabama$5,205.76
11Kansas$5,113.01
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Source: ValuePenguin analysis of 2019 data (latest available) from the Kaiser Family Foundation and the U.S. Census Bureau. Note: Excludes copays and other partial payments for prescriptions covered by government or commercial payers.

5% of prescriptions are paid for out of pocket across the U.S.

Nationwide, consumers completely foot the bill for a relatively small percentage of prescriptions — a mere 5%. Yet there are some wide gaps in the percentages across the U.S.

The three states where people completely pay out of pocket for the largest shares of their prescriptions are:

  • North Dakota: 12%
  • Mississippi: 10%
  • Wyoming: 8%

By comparison, residents of the six New England states (Vermont, Massachusetts, Connecticut, Rhode Island, New Hampshire and Maine) pay entirely out of pocket for 3% or less of prescriptions.

Access to health insurance coverage for prescriptions and the cost of medications are two factors that may influence how frequently consumers opt to pay out of pocket for prescriptions themselves. In North Dakota, for example, prescriptions cost $72.51 on average — the lowest in the country.

States with biggest shares of individual prescriptions paid out of pocket

Rank
State
Total prescription count per household
Out-of-pocket** prescriptions per household
Percentage of prescriptions paid out of pocket
U.S.32.81.54.57%
1North Dakota26.53.111.70%
2Mississippi43.64.39.86%
3Wyoming24.92.08.03%
4Alabama41.73.27.67%
5Arkansas42.23.27.58%
6South Dakota27.51.96.91%
7Nebraska33.32.16.31%
8Georgia34.92.26.30%
9Montana27.21.76.25%
10Idaho29.31.86.14%
11Utah31.71.95.99%
Show All Rows

Source: ValuePenguin analysis of 2019 data (latest available) from the Kaiser Family Foundation and the U.S. Census Bureau. Note: Excludes copays and other partial payments for prescriptions covered by government or commercial payers.

Methodology

Using prescription spending data from the Kaiser Family Foundation and Peterson-KFF, pharmaceutical spending data from the U.S. Bureau of Economic Analysis and population data from the U.S. Census Bureau, ValuePenguin analysts calculated:

  • Pharmaceutical and prescription spending over time
  • Where the biggest share of prescription costs and individual prescriptions are paid out of pocket
  • Where prescription costs per household are highest

All the data is the latest available.