Tag Archives: MMI

Milliman Medical Index: Typical American family faces $26,944 in annual healthcare costs

Milliman today released the 2017 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 2017, costs for this family will increase by 4.3%—which marks the lowest rate of increase in the history of this study—though the total dollar increase of $1,118 is consistent with the last decade of healthcare cost increases.

“The good news is that we are seeing a record-low 4.3% cost increase in this year’s MMI,” said Chris Girod, coauthor of the Milliman Medical Index. “The bad news: Continuing a 12-year pattern, healthcare costs for a typical family of four this year increased by more than $1,100.”

In recent years, the Milliman Medical Index has reported notable increases in pharmaceutical costs. Last year, drug costs increased by 9.1%. That rate of increase fell to 8% in 2017, which is still more than twice the rate of increase for all other components of healthcare spending.

“We’re seeing a smaller rate of increase for prescription drugs this year,” said Scott Weltz, coauthor of the MMI. “But the longer view reveals a different story. Since we began tracking this data in 2001, prescription drug costs for the typical American family have increased from $1,111 to $4,612.”

This year’s MMI includes analysis of dynamics driving healthcare costs, including the sometimes elusive nature of rebates in drug pricing. While rebates often do not result in cost savings for consumers at the pharmacy, they still impact the larger cost puzzle.

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. The MMI also separates costs into portions paid by employer versus employee. This year, the employer pays $15,259 of a family’s total healthcare costs and the employee—through payroll deductions and cost sharing at the time of service—pays $11,685.

“Back in 2001, the first year we measured the MMI, employees paid 39% of healthcare costs,” said Sue Hart, coauthor of the MMI. “This year, the family’s share of healthcare costs reached 43% of the total—an $11,685 total. We’ve seen a long, slow shift toward employees as these plans look to control healthcare costs.”

This year’s MMI includes discussion of the major components of the cost of care—payments to providers and the frequency and type of services used—and how they might vary outside the employer-sponsored system. Different discounts and payment mechanisms in the public markets can impact the costs for private insurers and therefore for the MMI family of four.

To view the complete MMI, click here.

Milliman Medical Index: Components of cost

Girod_ChrisEvery year the Milliman Medical Index (MMI) examines the cost of healthcare for the typical American family of four under five separate categories of services:

• Inpatient facility care
• Outpatient facility care
• Professional services
• Pharmacy
• Other services

MMI2016_figure8As shown in Figure 8 in the study, for the MMI family of four, total facility care comprised 50% of total spending, with 31% being inpatient and 19% being outpatient. Another 30% of spending is for professional services, which includes services provided by doctors, physician assistants, nurse practitioners, chiropractors, hearing and speech therapists, physical therapists, and other clinicians. Pharmacy constitutes 17% of the healthcare spending pie, and the remaining 4% is for “Other” services, which includes miscellaneous other items and services such as durable medical equipment, prosthetics, medical supplies, ambulance, and home health. Figure 9 in the study shows how the dollar amounts of these components have been changing over time.


At $7,965 in 2016, inpatient facility costs grew by 4.2% (see Figure 10), the lowest annual increase in the past 15 years. Inpatient facility utilization changes continue to be very close to zero. Utilization is typically measured in terms of the number of inpatient days per year. That number of days results from a number of admissions, and the number of days each patient stays in the hospital. In recent years, admissions have declined, which sometimes increases average length of stay because it is the less intensive cases that tend to be avoided. The net result is that total inpatient days have changed very little. The admission reductions and length of stay increases may have resulted partly from hospitals’ renewed emphasis on avoiding unnecessary readmissions, and partly by discharging patients at an optimal point in their care when they are healthy enough and logistics are in place such that they can recover and thrive without being in the hospital.


Outpatient facility spending also grew at a historically low rate, increasing by 5.5% to $4,922 in 2016. Part of the low growth rate may be attributable to pent-up demand and “crowd out,” as people newly insured by the Patient Protection and Affordable Care Act (ACA)—especially in states that expanded Medicaid—consume limited hospital resources and produce treatment delays for other populations. Elective surgeries are one type of service subject to such delays resulting from capacity constraints.

The professional services slice of the healthcare spending pie has shrunk slightly, to 30% of the total in 2016. Professional services costs increased from 2015 to 2016, but at a lower rate than other services. The slow growth is primarily due to relatively low increases in physician payment rates for a given basket of services. When a physician treats patients having employer group insurance, like the MMI family of four, the physician usually gets paid according to a fee schedule that has been negotiated between the health plan and the physician. Today, those fee schedules are often based on the fee schedule Medicare uses. Over the past 10 years or more, that Medicare fee schedule has increased only at very low rates, at or near 0% in many years. Consequently, physicians often receive little or no payment rate increases for their Medicare patients, and also for their patients who have employer group insurance.

Prescription drugs costs are still the fastest-growing slice of the healthcare cost pie, increasing to $4,270, or 17% of the total, in 2016. Drug spending increased by 9.1% from 2015 to 2016, down from the previous year’s increase of 13.6%. Although the lower rate of increase was encouraging, it is still much higher than the 3.8% growth rate for all other healthcare costs. Much of the prescription drug cost growth is driven by specialty drugs. While there is no universally accepted definition of specialty drugs, they are generally very high-cost drugs. Medicare defines specialty drugs as those costing more than $600 per script in 2016. For the MMI family of four, specialty drugs now constitute nearly 6% of all healthcare spending, which is approximately $1,550 for the family in 2016.

This content first appeared in the 2016 Milliman Medical Index.

What can be done to slow healthcare inflation?

Weltz-ScottMany initiatives have been put forth to limit the rise of healthcare costs. Here I discuss some of those initiatives while using key figures from the 2016 Milliman Medical Index (MMI) as a backdrop to help better understand how each one fits into the complicated puzzle of managing healthcare costs while delivering high-quality care for the MMI’s family of four.

With the family of four spending over $11,000 between its payroll deduction for health insurance and average out-of-pocket expenses at the point of care, it is easy to see why consumers are hungry for actionable information to inform healthcare purchasing decisions. However, it is not as simple as supplying a price list of medical services, given the variations in payment and treatment patterns. In addition, as pointed out earlier, the people who consume most healthcare dollars reach their out-of-pocket maximums and thus have little financial incentive to be savvy consumers. As a result, some other concepts are gaining traction to address these issues.

Value-based insurance (VBI)
What is it? This is a term that means different things to different people. In health insurance, it usually refers to benefit plan designs that encourage behavior that keeps patients healthy. VBI includes things like reducing deductibles or copays for patients who follow a defined plan of care or have a certain disease. Sometimes VBI simply revolves around granting lower employee contribution rates for those who join an employer’s wellness plan.

Opportunities and challenges. Some VBI initiatives are focused on that small portion of the population driving the majority of the cost. Incentives are often put in place to encourage changes in consumer behavior, such as $0 copays for prescriptions that treat a chronic condition. In turn, the expectation is that an investment like this will result in better management of conditions, fewer inpatient admissions or emergency room (ER) visits, lower costs, and better health outcomes. However, these programs must be carefully designed to avoid simply increasing costs. The hope is that proactively taking these actions will curb long-term trends by improving treatment and limiting the onset of preventable conditions.

MMI2016_figure4Defined contribution
What is it? Employers typically subsidize the cost of coverage. As Figure 4 from the MMI shows, employers are subsidizing approximately 57% of the cost for the family of four. While the MMI focuses on typical PPO coverage, many employers offer other plans such as high-deductible health plans (HDHPs) or sometimes health maintenance organizations (HMOs). Offering multiple benefit plan choices creates financial risks for employers, varying with how much they subsidize each plan and the number of employees that enroll in each plan. To mitigate this risk, many employers are defining their subsidies via a defined contribution to the plan. Then employees simply pay the difference between the premium of their chosen plans and the employer’s defined contribution.

Opportunities and challenges. Offering multiple health plan options can encourage employees to enroll in plans that incentivize appropriate consumption of healthcare services. However, these plan options can be less attractive to many employees. In addition, employers know all too well that offering more choices brings with it more costs from administrative complexities and adverse selection as employees choose the plans that minimize their own costs (while increasing the employer’s costs). These challenges are getting more attention in the market as employers begin to question the value proposition of private exchanges, which often use defined contribution approaches. Until such challenges are addressed, it is difficult to say whether the movement to defined contribution will meaningfully reduce costs or simply continue cost shifting to employees. Although Figure 5 from the MMI only shows five years of changes, 2016 actually marks the sixth consecutive year of such cost shifting, whereby employees’ share of the MMI has increased.


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More than $25,000?! How did we get here?

Hart, SueThe cost of healthcare for a typical American family of four covered by an employer-sponsored preferred provider organization (PPO) plan is now $25,826, according to the 2016 Milliman Medical Index (MMI). One question that comes to mind is “how did we get here?” The MMI excerpt below highlights an illustrative company with four employees to explain how healthcare costs may be spread across an employer’s population.


In the example in Figure 3, our employer pays the same amount for each family, regardless of the family’s healthcare costs. Each employee also pays the same for his or her family in the form of payroll deduction. The averages paid by the employer and employee for all families are consistent with the components of the MMI shown in Figure 4 (see study); however, each family has very different healthcare expenditures.

• Family 1 uses limited health services—some preventive visits for which they pay nothing out-of-pocket and copays for prescription drugs and office visits.
• The second family is fairly healthy as well, with similar services, but their oldest child had a single visit to the emergency room (ER) and follow-up visits that cost $6,000, of which the family paid $964 out-of-pocket.
• Family 3 welcomed a new baby. Maternity care, a hospital stay, and newborn visits cost $22,000, of which the family’s out-of-pocket cost was $5,000.
• Last is Family 4: The father has a chronic condition that put him in the hospital once, along with multiple visits to the ER and physicians, and multiple prescriptions. The mother also has health issues and the resultant ongoing costs, including specialty drugs. The children have only routine healthcare services. The family’s costs were capped by an out-of-pocket limit of $11,000, but total expenditures were nearly $75,000.

On average, the total cost of care for all four of the example families is $25,826, which equals the 2016 MMI. And yet the variation among family costs is striking, with the most costly being 74 times the least costly. The range of amounts paid by the family through contributions to care and out-of-pocket costs is significantly tighter, with Family 1 paying about $7,000 and Family 4 paying about 2½ times that, at nearly $18,000. This lower difference in total costs among the four families is driven by the employee’s payroll deduction being based on the average cost of care for a family of four, along with plan design features that limit the family’s out-of-pocket payments.

While the above is only an illustration, it demonstrates the range of healthcare costs that different families may experience, and how those costs may be spread across the employer’s population. It also shows that employee financial incentives to consume healthcare efficiently are limited, which contributes to the rising costs. First, the majority of the healthcare cost is often paid by the employer rather than the employee. Second, first-dollar coverage and fixed-dollar copays insulate patients from the true cost of their care. For example, although patients might pay $150 to visit the ER, which could seem like a lot of money, they are often unaware that the ER’s total charges could be several thousand dollars. And last, those with more extensive health issues may hit their out-of-pocket maximums and have limited incentives to avoid additional costs.

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.”