Healthcare costs for a typical American family will exceed $25,000 in 2016 and have tripled since 2001

Milliman today released the 2016 Milliman Medical Index (MMI), which measures the cost of healthcare for a typical American family of four receiving coverage from an employer-sponsored preferred provider plan (PPO). In 2016, costs for this family will increase by 4.7%—the lowest rate of increase in the history of this study—though the total dollar increase of $1,155 marks the 11th consecutive year that the total dollar increase has exceeded $1,100. The employer pays $14,793 of the total healthcare costs and the employee—through payroll deductions and cost sharing at the time of service—pays $11,033.


“The MMI surpassed $25,000 this year, a significant and somewhat unsettling milestone,” said Chris Girod, co-author of the Milliman Medical Index. “Given the steep cost increases we’ve seen in the 15 years we’ve been studying healthcare costs for the typical American family, in this year’s report we reflect on how we got to this point and where we go from here.”

Healthcare cost trends have exceeded medical CPI in every year since Milliman published its first MMI in 2001. Healthcare has represented an increasing share of the national GDP. With an average of 7.8% in annual increases, the MMI has more than tripled in 15 years.

Most of the components of care analyzed by the MMI (physician, outpatient, inpatient, other) experienced trends in line with recent years, and overall the annual medical cost increase has ramped down from more than 9% in 2001 to less than 4% this year. But cost changes related to prescription drug coverage have been more volatile, with drugs becoming a larger portion of family healthcare expenditures—this year reaching 17% of their total. While that number requires a caveat—it does not include prescription drug manufacturer rebates that employers may receive for specialty and other high-cost drugs—it also points to the increasingly important role that drug costs play in a family’s cost of care.


The MMI is unique among health cost studies because it measures the total cost of health care services used by the family of four, including out-of-pocket expenses paid at time of service, and it separates the costs into portions paid by employer versus employee.

“Back in 2001, the first year we measured the MMI, employers paid 61% of costs while employees paid 39%. In 2016, the same split is 57% and 43%,” said Sue Hart, co-author of the MMI. “This year, the family’s share of healthcare costs reached $11,033 out of a total of $25,826. It’s evident that employees are taking on an increasing proportion of healthcare costs. ”

“The steady decline in annual cost trends over the 15 years we’ve tracked the MMI provides a ray of hope,” said Scott Weltz, co-author of the MMI. “Hopefully the current and future efforts to control costs will continue this trend.”

Milliman webinar: Medicaid pass-through payment guidance

Join Milliman’s Christine Mytelka and Andrew Gaffner for the webinar “Medicaid pass-through payment guidance” on Tuesday, May 24, at 12 pm EST. They will provide an overview of pass-through payment provisions in the new Medicaid managed care regulations. This is the first in a series of Milliman articles and webinars focused on the new Medicaid managed care rule. To register, click here.

Reduce healthcare’s long-tail problem with telemedicine

Technology has enabled many industries to reduce or eliminate the long-tail problem. Similarly, telemedicine offers the healthcare industry a solution to its long-tail problem – access barriers to healthcare services. A new article entitled “Telemedicine and the long-tail problem in healthcare” by Milliman’s Jeremy Kush and Susan Philip explores the benefits of telemedicine as a mode for healthcare delivery. The authors also analyze current levels of telemedicine utilization and identify five factors limiting adoption.

Pass-through payment guidance in final Medicaid managed care regulations

As managed care has replaced fee-for-service (FFS) in the Medicaid market, states have often sought to replicate fee-for-service supplemental provider payment programs in managed care. Supplemental payment programs, sometimes called upper payment limit (UPL) programs, constitute a major source of revenue for providers in many states. Pass-through payments are the primary mechanism currently used to retain supplemental payment funding in managed care.

Final Medicaid managed care regulations, released April 25, 2016, confirm that pass-through payments will be restricted in the near future and ultimately eliminated. In this paper, Milliman’s Andrew Gaffner, Carmen Laudenschlager, and Christine Mytelka provide an overview of pass-through payment provisions in the new regulations, including the rationale and phase-out timing of the Centers for Medicare and Medicaid Services (CMS). They also discuss some of the difficulties the loss of pass-through payments will cause for states and providers and suggest a number of potential changes states can consider to mitigate the impact on managed care programs.

Regulatory roundup

More healthcare-related regulatory news for plan sponsors, including links to detailed information.

IRS verification of ACA premium tax credit claims during the 2015 filing season
The Treasury Inspector General for Tax Administration (TIGTA) released “Affordable Care Act: Internal Revenue Service verification of premium tax credit claims during the 2015 filing season.” The report analyzes more than 2.6 million tax returns with a premium tax credit (PTC) claim that were filed between January 20, 2015, and May 28, 2015. The analysis found that the IRS accurately determined the allowable PTC on more than 2.4 million (93 percent) returns. TIGTA is continuing to work with the IRS to determine the cause for calculation differences in 150,385 of the remaining 182,884 tax returns. Computer programming errors resulted in an incorrect computation of the allowable PTC for 27,827 tax returns.

To download the entire report, click here.

Post-acute care integration should be a priority for your hospital

Hospital and health system leadership teams now recognize the importance of a thorough post-acute care (PAC) integration strategy. Many of them are developing networks that integrate physicians and investing in population health analytics, positive steps towards value-based delivery. However, many of these organizations will not see the meaningful financial and patient care benefits of these initiatives for several more years. Given current market conditions, PAC integration is likely to immediately enhance the value of patient care and have a positive impact on hospitals’ financials in the near-term. Milliman’s Ed Jhu and Sean Slattery and Kurt Salmon’s Ross Armstrong offer more perspective in a recent Becker’s Hospital Review article.

What are the key financial considerations for providers when evaluating the Next Generation ACO Model?

The Department of Health and Human Services (HHS) is striving to link 50% of Medicare payments to alternative payment models by 2018. One of the primary alternative payment models offered to Medicare providers is the Next Generation Accountable Care Organization (NGACO). Due to the potential large risk exposure for organizations considering this model, they should work with an actuary to understand the critical elements driving financial success (or failure). In this article, Milliman’s Charlie Mills, Cory Gusland, and Noah Champagne identify five key financial considerations that all ACOs should review before committing to the program. The considerations are ranked by the authors’ perceived importance, with one being the most important.

5. ACO’s CY2014 experience is the baseline for the first three performance years
4. Risk score changes are capped at 3% from the baseline year to each performance year
3. First dollar savings and losses
2. The 2016 benchmark trends are likely understated
1. In order to achieve savings, participants must outperform trended baseline less discount

Regulatory roundup

More healthcare-related regulatory news for plan sponsors, including links to detailed information.

IRS issues the 2017 inflation-adjusted deduction limitations for annual contributions to HSAs
The Internal Revenue Service (IRS) released Revenue Procedure 2016-28, which provides the 2017 inflation-adjusted deduction limitations for annual contributions made to a health savings account (HSA) under section 223. These deduction limitations are updated annually pursuant to section 223(g) to reflect the cost-of-living adjustments.

For more information, click here.

Guide for electronically filing ACA information returns for software developers and transmitters
The IRS released “Publication 5165: Guide for electronically filing Affordable Care Act (ACA) information returns for software developers and transmitters (processing year 2016).” The report outlines the communication procedures, transmission formats, business rules, and validation procedures for returns transmitted electronically through the ACA Information Returns (AIR) system. To develop software for use with the system, software developers, transmitters, and issuers should use the guidelines provided in this publication along with the extensible markup language (XML) schemas published on the IRS website.

To read the entire report, click here.

The CRS publishes employer shared responsibility report
The Patient Protection and Affordable Care Act (ACA) creates shared responsibilities for both employers and individuals with regard to health insurance coverage. The ACA expands federal private health insurance market requirements and requires the creation of health insurance exchanges to provide individuals and small employers with access to insurance. A new Congressional Research Service (CRS) report examines the new employer responsibilities.

To read the entire report, click here.

Plan design strategies in the ACA marketplace: A review of Unified Rate Review Template data

What patterns in plan design offerings have been seen in the marketplace during the first three years after the implementation of the Patient Protection and Affordable Care Act (ACA)? Individual market member projections exhibited a preference for lower-cost plans with health maintenance organization (HMO) plans and plans at the lower end of the allowable actuarial value (AV) range being the most popular. In contrast, small group membership projections shifted toward higher AV ranges within metallic tiers, which illustrates different preferences in the small group market.

By looking at trends in plan offerings, even at a macro level, insurers may be able to gain insight from emerging patterns in the market to help frame marketplace strategies in future years. Milliman’s Abigail Caldwell and Jordan Paulus offer more perspective in this paper.

Regulatory roundup

More healthcare-related regulatory news for plan sponsors, including links to detailed information.

New ACA implementation FAQs: Preventive services, mental health parity, and women’s health
The U.S. Departments of Treasury, Labor (DOL), and Health and Human Services (HHS) published frequently asked questions (FAQs) about the Patient Protection and Affordable Care Act (ACA) implementation (Part 31). The FAQ covers:

• Coverage of Food and Drug Administration (FDA)-approved contraceptives
• Rescissions
• Out-of-network emergency services
• Coverage for individuals participating in approved clinical trials
• Limitations on cost-sharing under the ACA
• Mental Health Parity and Addiction Equity Act of 2008
• The Women’s Health and Cancer Rights Act

To read the entire FAQ, click here.