- Forbes published an interesting post on the Annual Healthcare Costs for a Family.
- In 2015, the cost of healthcare for a typical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan is $24,671 (see Figure 1) according to the Milliman Medical Index (MMI).1 The amount will almost certainly surpass $25,000 in 2016.
- Get the PDF of the 2015-Milliman Medical Index
Forbes published a report from the actuarial firm of Milliman, Inc. The Milliman Medical Index (MMI) is the total annual cost of healthcare as estimated by Milliman for a typical family of four with employer-provided PPO insurance coverage.
According to Milliman, this year’s MMI is $24,671 and represents a $1,456 (6.3%) increase from last year’s MMI of $23,215.
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, 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. Chris Girod – Principal and Consulting Actuary at Milliman, Inc. and Co-Author of The Milliman Medical Index
The employer portion of the total is still the larger of the two components ‒ $14,198 ‒ but the employee portion is now almost 43% of the total ‒ $10,473. That represents an 8% increase to employees (overall) and a 5% increase to the employer over last year. The $10,473 amount that Milliman calculates as employee spending is divided over two categories ‒ out-of-pocket expenses incurred at the point-of-care ($4,065) and premium costs through payroll deductions ($6,408).
Across the board increases in prescription drug costs were cited as the primary cause for the higher total percentage increase (6.3% this year versus 5.4% in 2014).
The rate at which prescription drug costs increased this year doubled over the average increase of the prior five years. 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. Scott Weltz ‒ Co‒Author of the MMI
The rise in prescription drug pricing was also called “unsustainable” in a recent study by one of the countries largest pharmacy benefit management companies Express Scripts.
An estimated 576,000 Americans spent more than the median household income on prescription medications in 2014. This population of patients grew an astounding 63% from 2013. Further, the population of patients with costs of $100,000 or more nearly tripled during the same time period, to nearly 140,000 people. The total cost impact to payers from both patient populations is an unsustainable $52 billion a year. Super Spending: U.S. Trends in High-Cost Medication Use – Express Scripts
More generally ‒ and as seen in all prior years ‒ the rate of increase highlighted by the MMI far outpaces the consumer price index.
Milliman itself may not be that well known outside of healthcare circles, but it was established in 1947, so it’s just 2 years shy of its 70th Anniversary. A brief background from their website here:
From its inception, the firm was a leader in life insurance and pension consulting, and later grew robust healthcare and property & casualty disciplines. In the 1950s, Milliman issued the first health insurance cost benchmarking tool, which continues to be the most respected pricing tool available. In the 1960s, Milliman consultants pioneered new designs for annuities and employee benefit plans and helped devise the first health maintenance organizations (HMOs). In the 1970s, Tom Bleakney and Wendell Milliman literally wrote the book on public pensions. In the 1980s, Milliman developed early pension valuation and financial modeling systems that would become industry standards. In the 1990s, the firm began its global expansion by opening an office in Tokyo, and that expansion has now culminated with Milliman offices in most major cities around the globe. And in the last decade the firm has eclipsed $750 million in revenue while continuing to be an innovation engine for our clients.
Given all the trends, it’s almost certain that next year’s MMI will easily exceed $25,000 for the typical family of four with employer-provided PPO coverage.