Healthcare Town Hall

Last year, when healthcare costs for the typical American family of four exceeded $20,000 for the first time, the Milliman Medical Index (MMI) compared the cost of a family’s healthcare to the cost of an average midsize sedan. This year, with costs exceeding $22,000 ($22,030), we note that healthcare costs for our family of four are almost as much as the cost of attending an in-state public college ($22,261) for the current academic year. Or, for those looking for an alternative to college, $22,000 will also buy you a Scooby Doo “Mystery Machine” van.

The total share of this cost borne directly by the family—$9,144 in payroll deductions and out-of-pocket costs—now exceeds the cost of groceries for the MMI’s typical family of four. The out-of-pocket cost alone—$3,600 for co-pays, coinsurance, and other cost sharing—is more than the average U.S. household spends on gas in a year.

Taking the comparisons even further, the Health Populi blog offered this menu:

If you have $22,030 in your wallet, you can buy:

• A princess-cut diamond
• A Ford Focus 4-door
• A year’s tuition at James Madison University (in-state, 2013-14)
• A health plan for a family of four.

The 2013 Milliman Medical Index gauges the annual health care costs for a typical American family at $22,030, up $1,302 from 2012 — a 6.3% increase, nearly 6x the all-items increase of 1.1% for the U.S. Consumer Price Index from April 2012-April 2013. That 1.1% includes the costs of food and energy, along with cars, tobacco, shelter, and other consumer goods.

Whether our family fully realizes the degree to which total healthcare costs eclipse so many other household costs is another question. Because the employer pays a significant share of our typical family’s healthcare costs, some of these costs are not visible in the family budget. But for four of the last five years, our family has seen a larger percentage increase in costs than the employer. Our typical family is well aware of the increasing cost of care, even if it is only responsible for paying 41 cents of every healthcare dollar.

For more on the MMI, check out this coverage from the New York Times, Wall Street Journal, and Forbes (here and here).

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Milliman today released the results of its 2013 Milliman Medical Index (MMI), which measures the healthcare costs for a typical American family of four receiving healthcare benefits through an employer-sponsored preferred provider organization (PPO) plan. The cost of care for this typical family in 2013 is $22,030.

“For the second consecutive year, the increase over the prior year on a percentage basis was the lowest in the history of the study—and yet the total-dollar increase still exceeded $1,300 for the fourth year in a row,” said Lorraine Mayne, principal and consulting actuary with the Salt Lake City office of Milliman.

“The cost for our typical family is split between employer and employee, with the employer paying about $12,886 in employer subsidy while the employee pays the remaining $9,144 in the form of payroll deductions and out-of-pocket costs,” said Scott Weltz, principal and consulting actuary with the Milwaukee office of Milliman. “While both employers and employees share the burden of financing annual cost increases, our study shows that this year employees continue to take on a growing share of the overall costs.”

In addition to highlighting which costs are borne by employers and which are borne by employees, the MMI also tracks cost increases based on different categories of care, including inpatient care, outpatient care, physician and professional services, and pharmaceuticals.

While the Patient Protection and Affordable Care Act (ACA) has dominated many discussions of healthcare costs since its passage, the law has not materially affected cost of care for families covered by large employer-sponsored plans such as that exemplified by the MMI.

“In addition to the usual discussion of healthcare cost drivers, this year’s MMI includes discussion of how health reform is—and is not—affecting families with these sorts of employer-sponsored plans and how these plans fit in the larger context of a changing healthcare landscape,” said Chris Girod, principal and consulting actuary with the San Diego office of Milliman.

To view the complete MMI, go to www.milliman.com/mmi.

Cost Chris Girod, Lorraine Mayne, Milliman Medical Index, MMI, Scott Weltz

The annual Milliman Medical Index (MMI), which measures the cost of care for the typical American family of four, will be released on Wednesday, May 22. Last year, the cost of care for the MMI family exceeded $20,000 for the first time and was roughly the same as the cost of a midsize sedan. What will this year reveal?

Hint: Costs didn’t go down.

Be sure to check in back at this blog or at www.milliman.com/mmi on Wednesday for the 2013 MMI.

Cost Milliman Medical Index, MMI

As we move into April, health plans are working toward impending deadlines to complete rate filings for insurance products that will be available next year on state health exchanges. Last week we saw the release of two notable public analyses of premium impacts—a 50-state report from the Society of Actuaries, and a Milliman analysis for the California exchange, Covered California—and there are probably more estimates coming soon as the healthcare industry and the nation look to better understand the cost implications of the Patient Protection and Affordable Care Act (ACA).

Even though public debate has been wrestling with reform topics for three years now, there continues to be confusion over the interaction between insurance premiums and federal subsidies for lower-income individuals.

The common mistake here is that, while subsidies may reduce the amount that a lower-income individual has to pay directly for health insurance, they do not affect the actual premium. If a monthly premium for an individual policy in California is $450, a federal subsidy of $392.50 would reduce an individual’s cost to a manageable $57.50. But this is different from reducing the premium. The premium remains $450, with or without the subsidy. Here’s an illustration of this idea:

This distinction is important because premiums reflect the underlying cost of care. We cannot reduce premiums without reducing the underlying cost of care. Subsidies help make increasing premiums more affordable for lower-income consumers, but they do not actually reduce premiums. Someone still has to pay the full premium in order for the health plan to remain solvent. If the public is to better understand healthcare costs, it also needs to understand this distinction, because it is that underlying cost of care that is driving health insurance rates upward.

For a better sense of how the underlying cost of care affects premiums, read this paper. The Milliman Medical Index is also a useful reference in understanding this concept as are the videos in Milliman’s “Understanding Healthcare Costs” video series.

Cost California, Milliman Medical Index, MMI, subsidy, Understanding healthcare costs

Workforce Management looks back at the roots of the wellness concept.

Also driving enthusiasm for workplace wellness campaigns in the 1980s was the rising cost of health benefits…

In 1987, StayWell, along with actuarial firm Milliman & Robertson (now called Milliman Inc.), released a study showing for the first time that common health-risk factors such as smoking, obesity and not wearing seat belts were strongly linked to higher health care costs. Subsequent studies backed those findings.

“It got employers very interested in costs,” [David] Anderson [of StayWell Health Management] says.

Just for the sake of nostalgia, check out the prices of various household goods in 1987. The car prices in particular caught our eye–especially with healthcare costs for a family of four in 2012 approximating the cost of a midsize sedan.

Prevention Milliman Medical Index, MMI, Wellness

In 2012, employees paid $8,584 of the total $20,728 cost of care for the typical family of four.  All told, $3,470 of the $8,584 was for employee out-of-pocket costs, such as copays, deductibles, and coinsurance.  The figure below shows the distribution, by component of spending, of this $3,470.   

Hospital services represented $1,675 of the total, followed by $1,110 for physician services and $555 for pharmacy benefits.  Total employee out-of-pocket costs increased by 5.8% in 2012, which was less than the 6.9% increase in the total cost of care.   Though not shown in the figure, the employee payroll deduction of $5,114 increased by 8.2% in 2012.

For more, read the complete Milliman Medical Index.

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American Medical News looks at the cost drivers underlying this year’s average of $20,728 in healthcare costs for a typical American family of four. Here is an excerpt:

Milliman breaks down the model family’s health care spending by category: physician services, inpatient stays, outpatient care and pharmacy costs. Spending on physician services grew at the lowest rate of any of the care components in the Milliman index, Mayne said, and that’s been true for several years.

“Some of the other categories are catching up,” she said. As a result, physician services now account for 32% of the medical index, at $6,647 — but inpatient hospital expenses were nearly as high a share, at $6,531.

So that’s what’s underlying the cost increases. What are the downstream implications for employers and the employees receiving insurance through their employer? CNN/Money delves into that question:

Over the past five years, 40% of working adults have seen their employer-sponsored benefits reduced or eliminated entirely, according to a survey by the National Endowment for Financial Education, or NEFE.

Harris Interactive conducted the survey on behalf of the nonprofit, polling 2,210 adults in the U.S. — more than half of whom were employed.

An overwhelming majority, or 72%, of those who saw their benefits cut said their health insurance coverage was hardest hit, NEFE said. As employers cut back, employees shouldered more costs, including higher deductibles and co-pays, as well as more expensive premiums.

This year, workers’ out-of-pocket costs rose 5.8% to an average of $3,470 for a typical family of four, according to data compiled by independent actuarial and health care consulting firm Milliman Inc.

The trend of employees taking on more of the cost share is not new and has persisted more often than not in recent years. Just roll back the calendar one year and consider what we posted last May 31.

Cost Lorraine Mayne, Milliman Medical Index, MMI

Lorraine Mayne speaks with AM Best about the Milliman Medical Index and offers some perspective on what is driving this year’s healthcare cost increase.

Cost Lorraine Mayne, Milliman Medical Index, MMI

Uwe Reinhardt’s article on the New York Times Economix blog uses the Milliman Medical Index to frame the healthcare affordability challenge.

The virtue of this index lies in its inclusion of out-of-pocket spending in total health spending. Just tracking premiums for employment-based health can be misleading, if employers shift more and more of the cost of health care out of their benefit package into deductibles or coinsurance paid by employees, exclude certain benefits altogether or otherwise limit coverage…

Although the family’s contribution of $8,584 is by no means trivial, it is less than half of the total average cost of a family’s health care cost. Most employees probably believe that “the company” – that is, its owners – absorbs the other 58 percent of the family’s total health spending.

Economists have long argued that this is an illusion – that over the longer haul the bulk and possibly all of the ostensibly employer-paid health insurance premiums gets indirectly shifted back into the employee’s paycheck through lower increases in take-home pay.

To the extent that there is a limit to this cost shift – e.g., for low-wage or unionized employees — the backward shift takes the form of reduced employment or, alternatively, the employer’s decision not to offer employees health insurance at all.

Cost Milliman Medical Index, MMI, Uwe Reinhardt

We’re seeing various reactions to the Milliman Medical Index.

• The Incidental Economist says “Healthcare costs are scary.”
• Julie Rovner offers perspective in the National Journal (subscription required); here’s an excerpt:

And even without moving to consumer-directed plans, patients are spending more of their own money. The latest Milliman Medical Index, which tracks annual employer and employee spending on health care, shows that in 2011, health care costs for the average family of four in an average insurance plan topped $20,000. But, as in every year except one since 2007, workers are picking up a larger share of the overall bill. As a result, of that $20,728 medical cost for an average family of four, workers paid $8,584—that is, $5,114 in employee premium contributions and $3,470 in employee out-of-pocket costs.

If affordability is the problem, there is no agreement on how to fix it. Employers are worried about being required to offer too many benefits. But every benefit that’s not covered by insurance is one that people who are sick will have to pay for out of pocket. And that won’t solve the affordability problem, either.  

• The Gaston Gazette compares the cost of healthcare in Atlanta to the cost of a Honda Civic.
• Forbes (which already has one car comparison on the books) compares healthcare costs to a new Chevrolet Cruze, with a caveat:

Ok – so in fairness the car is actually $205 more than the MMI – and the price of the car doesn’t include tax or license (True Market Value® Pricing courtesy of Edmunds.com). Even so, as a family of four, you’re basically buying this baby every year – with a 12 month payment schedule. By 2022, each family of four will have paid the cost equivalent of this model in each of the 10 color choices (over $200,000) – just for healthcare.

• Insurance and Financial Advisor looks at the implications of healthcare reform on healthcare costs; here is an excerpt:

If all provisions of PPACA were struck down or repealed by the Supreme Court, a decision expected in June, Milliman said:

• consumers would be in a situation similar to where they are now;
• each employer would face the decision of whether to roll back plan changes that were made and in some cases have become “valued benefits” for employees;
• and providers may continue to explore initiatives to improve care delivery such as patient-centered medical homes (PCMH) even without the PPACA.

The pressures to lower healthcare costs, including a focus on provider reimbursement, coordination of care, and narrower networks, will not go away, according to the Milliman report.

To see the full Milliman Medical Index, click here.

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