Tag Archives: Sue Hart

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, co-author 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, co-author 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, co-author of the MMI. “This year, the family’s share of healthcare costs reached 43% of the total—a $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.

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.

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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.

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“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.

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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.”

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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Healthcare costs climb to $24,671 for a typical American family in 2015

Milliman today released the 2015 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 2015, costs for this family will increase by 6.3% ($1,456), resulting in a total cost of $24,671. The employer pays $14,198 of this and the employee—through payroll deductions and cost sharing at the time of service—pays $10,473. Of this year’s total $1,456 increase, $467 was a result of prescription drugs, a 13.6% increase after a five-year period in which prescription drug costs averaged annual increases of 6.8%.

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“For the last several years we’ve noted that the Milliman Medical Index was only indirectly affected by the Affordable Care Act, since the employer-sponsored insurance market was not a focus of the early reforms,” said Chris Girod, coauthor of the Milliman Medical Index. “But now we have the prospect that this family’s health plan—which, in terms of actuarial value, is in a ‘gold’ plan—may trigger the ‘Cadillac tax‘ that goes into effect on high-cost health plans in 2018. Whether or not our typical family of four finds themselves affected by the Cadillac tax will depend on whether future trends exceed recent levels, with people insured through smaller employer-sponsored plans potentially being more susceptible.”

This year’s 6.3% cost increase follows last year’s all-time low of 5.4%. Most of the components of care analyzed by the MMI (physician, outpatient, inpatient, other) experienced trends in line with recent years, but the sharp increase in prescription drug costs heightened the overall rate of increase.

“The rate at which prescription drug costs increased this year doubled over the average increase of the prior five years,” said Scott Weltz, coauthor of the MMI. “This was driven by a combination of factors, including the introduction of new specialty drugs, a continued increase in compound drugs, and price increases for both brand name and generic drugs.”

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“Healthcare costs for this family have doubled in the past decade, and tripled since we began tracking this information in 2001,” said Sue Hart, coauthor of the MMI. “As has been the case throughout the time we have studied costs for this family, the rate of increases far outpaces the consumer price index.”

Employees and employers have shared the burden of this cost increase. The MMI is somewhat 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. For the fifth consecutive year, employees have assumed an increasing percentage of the total cost of care.

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To view the complete MMI, go to http://us.milliman.com/MMI.

Healthcare costs climb to $23,215 for a typical American family in 2014

Milliman has released the 2014 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 2014, costs for this family will increase by 5.4% ($1,185), resulting in a total cost of $23,215. The employer pays $13,520 of this and the employee—through payroll deductions and cost sharing at the time of service—pays $9,695.

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“The good news is that the annual rate of increase has been declining for years,” said Chris Girod, coauthor of the Milliman Medical Index. “The bad news is that this represents yet another $1,100 jump in costs for this typical family. Even if we are bending the cost curve, there are few other household expenses that increase at four figures per year.”

This year’s 5.4% cost increase is the lowest in the 14-year history of the MMI and is almost a full percentage point lower than the rate of increase in 2013, which, at 6.3%, was the prior record low for this study. Even with the deceleration, the impact over time of high trends is still quite evident.

“Healthcare costs for this family have more than doubled over the past 10 years,” said Sue Hart, coauthor of the MMI. “These costs have increased a total of 107% since 2004.”

Employees and employers have shared the burden of this cost increase. The MMI is somewhat unique among health cost studies because it measures total cost, including out-of-pocket expenses paid at time of service, and it separates the costs into portions paid by employer versus employee. For the fourth consecutive year, employees have assumed an increasing percentage of the total cost of care.

“Since 2010, the total employee cost, which includes both payroll deductions and out-of-pocket expenses, has increased by around 32%,” said Lorraine Mayne, coauthor of the MMI. “Employer premium contributions have increased by 26% in that same period.”

What should this family expect in the future?

“Any number of factors could influence healthcare costs in coming years,” said Scott Weltz, coauthor of the MMI. “The economy is a big one, but there are others: provider risk sharing and increased transparency may contribute downward cost pressure. Specialty pharmaceuticals could introduce upward cost pressure. And while it has yet to materially affect costs, the Affordable Care Act is an elephant that’s about to enter the room. There are provisions in the law that may contribute either upward or downward pressure on employer-sponsored plans; it will take some time before we know how health reform is affecting a typical family that receives coverage through an employer.”

To view the complete MMI, go to http://us.milliman.com/MMI.