Tag Archives: Milliman Medical Index

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 organization (PPO) plan. 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, coauthor 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 the consumer price index (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 healthcare 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, coauthor 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, coauthor of the MMI. “Hopefully the current and future efforts to control costs will continue this trend.”

Healthcare tab increasing for individuals

The 2015 Milliman Medical Index (MMI) shows that the cost of employer-sponsored healthcare increased by $1,456 with employees paying more of that increase than employers. This Forbes article cites the MMI and highlights the fact that individuals are increasingly picking up the cost of healthcare.

Here is an excerpt:

Those reporting problems paying their medical bills declined to 17.3% in March of this year compared to 22% in September 2013 before broader coverage under the ACA began.

Still, the health law offers access to subsidized private coverage and the health insurance industry and employers are shifting more and more costs onto subscribers and workers for the better part of the last decade. Cost-shifting makes a health plan subscriber think twice before choosing a more expensive treatment and has slowed medical inflation, but it’s also increased health plan enrollee out-of-pocket costs.

The 2015 Milliman Medical Index reported last week that the annual cost of benefits through an employer-sponsored preferred provider organization (PPO) rose 6.3%, or $1,456, to $24,671 in 2015 compared to $23,215 in 2014. Out-of-pocket costs were rising in that study linked here.

Here’s some more perspective from the MMI:

Employee costs (combined employee contributions and out-of-pocket costs) increased by 8.0% in 2015. This year’s increase is more than in prior years (6.0% in 2014 and 6.5% in 2013). This bad news continues a longer-term trend in which employees continue to bear more of the overall healthcare spending, according to the MMI—rising from 40.6% in 2010 to 42.5% in 2015.

Figures 8 and 9 illustrate how cost sharing has evolved over time. Employers adjust benefits each year in line with their healthcare budget constraints. In 2015, employers assumed $678 of the total increase in the cost of care for the family of four. Employees saw a dollar increase of $778 ($500 from increased payroll deductions and $278 from more out-of-pocket expenses). The employees’ 8.0% increase is composed of a 7.3% increase in employee out-of-pocket costs and 8.5% increase in payroll deductions. In other words, while both employer and employee costs increased, the employee experienced a larger percentage increase.



The price of medical care boosts Consumer Price Index

A sharp rise in medical care prices contributed to a recent increase in the Consumer Price Index (CPI). Although economists and healthcare experts have not clearly identified the reasons for the spike, the 2015 Milliman Medical Index (MMI) indicates that prescription drugs are driving medical costs upward. MMI co-author Chris Girod offers some perspective in this CNBC article.

The so-called medical care index, maintained by the Bureau of Labor Statistics, rose 0.7 percent in April, “its largest increase since January 2007,” the BLS wrote in a report issued Friday.

The BLS report comes three days after the large actuarial and consulting firm Milliman projected 6.3 percent growth in the costs of health care for a typical family of four on an employer-based plan in 2015. That compares to a low-water mark growth rate of 5.4 percent last year.

Milliman’s report is the latest indication that health-care costs, which saw a historic slowdown in their rate of inflation in the years after the Great Recession of 2008, are headed back up toward the trends seen before the financial meltdown. Before the recession, double-digit inflation in health-care costs was common.

“There’s a correlation between the CPI medical index and the MMI, but they’re very different measures,” said Chris Girod, a principal and consulting actuary at Milliman, who added that the MMI looks at a broader range of prices. “The annual increases [in the MMI] tend to be a lot higher than CPI.”

Milliman’s report blamed resurgent inflation on price increases for prescription drugs, particularly specialty drugs. “The rest of the category, the increases were pretty ho-hum this year,” he said. Prescription drug prices overall are expected to increase by 13.6 percent in 2015, according to Milliman’s index.

In the category of specialty drug prices alone, “the annual increases are around 20 percent right now,” Girod said. Those specialty drugs include Sovaldi, made by Gilead, which in a 12-week course of treatment can cost $84,000.

“The drug trends have actually been coming down in the last four or five years until now,” Girod said.

ACA’s influence on the large employer market

Hart, SueLast year’s Milliman Medical Index (MMI) report noted that emerging reforms required by the Patient Protection and Affordable Care Act (ACA) had yet to show material direct impact on the cost of care for our family of four because this family is often insured through large group health plans. Some of the most far-reaching ACA reforms are focused on access to insurance in the individual and small employer markets and have more immediate impacts on premium rates in those markets. While this modest impact continues in 2015, there are a number of influences that the ACA may have on costs in the large employer market over the next few years. Some of these influences will directly affect the large employer market—the Cadillac tax is the most visible such change—while others may be indirect, with spillover from provisions in other markets driving change in the large employer market.

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Prescription drugs propel healthcare costs upward

Weltz-ScottUntil recently, prescription drugs have not materially altered the trajectory of the Milliman Medical Index (MMI). With drug costs being roughly 15.9% of the annual healthcare expense of our typical family of four, drug trends must be very different from other categories of care to materially influence overall healthcare cost trends. Nevertheless, they are doing just that. As discussed below, a combination of forces is creating the perfect pharmaceutical storm. Employers and families alike feel the financial consequences more than ever when a prescription is filled.

Specialty drugs
Specialty drug expenditures have grown over the past 25 years to the point where they now account for one of every three dollars spent on prescription drugs. While various definitions of specialty drugs are used in the industry, they nearly all have a common denominator: They are expensive. Medicare defines specialty drugs as those costing more than $600 per prescription. But the costs can be much higher than that. The category includes the well-publicized treatments for hepatitis C, some of which cost more than $1,000 per dose. Many subclasses of specialty drugs have huge potential to improve health outcomes, but also come at a significant cost. Experts project that the pipeline for specialty drugs is substantial and likely will not subside in the near future as manufacturers focus their efforts on targeted genetic profiles and rare disease states.

Compounded drugs
Compounded drugs have become one of the most costly components of pharmacy spending over the past several years. In fact, several recent national news stories have focused on this phenomenon. The U.S. Food and Drug Administration (FDA) defines compounding as “a practice in which a licensed pharmacist, a licensed physician, or, in the case of an outsourcing facility, a person under the supervision of a licensed pharmacist, combines, mixes, or alters ingredients of a drug to create a medication tailored to the needs of an individual patient.” Many of these drugs (often custom creams and ointments) have questionable clinical value, and compounding pharmacies are receiving much higher prices for compounds than the individual ingredients they comprise. As a result, drug trends have accelerated for compounded drugs, which is due in part to more limited regulation for them than for other drugs, along with increases in the average wholesale price (AWP) of these drugs. Pharmacy benefit managers (PBMs) have responded with specialized programs targeting the inappropriate use of this emerging drug class.

“Patent cliff” aftermath
Over the past few years, many brand-name drugs have lost patent protection, including some of the highest-grossing drugs in history such as Lipitor, Plavix, and Nexium. This “patent cliff” benefited consumers because generic versions became available at much lower costs. Now that many of the heavily utilized brand-name drugs have lost patent protection, the year-over-year price reductions produced by generic shifts have slowed as well. In addition, there is also evidence that generic price trends are on the rise, where in past years they have been flat or even negative. Manufacturer consolidation and reduced competition, particularly among generic manufacturers, may be a contributor to the increase in cost.

AWP increases
By some accounts, the cost of brand-name drugs is accelerating at a rate of over 10% annually, with generics increasing at a slower rate, but still higher than in the recent past. In large part, this has to do with the AWP increases themselves and with the fact that many payers’ contracts are tied to a discount off the AWP. Because most employer prescription drug contracts are based on discounts from the AWP, consumer prices are at the mercy of the manufacturer’s price increases.

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