qotd: Family health costs now over $20,000 (MMI)

Milliman Research Report

May 2012

2012 Milliman Medical Index

The annual Milliman Medical Index (MMI) measures the total cost of healthcare for a typical family of four covered by a preferred provider plan (PPO). The 2012 MMI cost is $20,728, an increase of $1,335, or 6.9% over 2011. This is the first year the average cost of healthcare for the typical American family of four has surpassed $20,000.

Of the $20,728 medical cost for a family of four, the employer pays about $12,144 in employer subsidy while the employee pays the remaining $8,584, consisting of $5,114 in employee contributions and $3,470 in employee out-of-pocket costs.

Out-of-pocket costs are of particular significance given PPACA's focus on actuarial value, a concept predicated on the percentage of a plan's costs that is paid out of pocket by the insured. Figure 8 (link below) indicates how, as was the case last year, the MMI's plan remains slightly better than a gold plan as defined by PPACA. The MMI plan has maintained a relatively stable actuarial value over time because employers typically adjust their plan designs on an annual basis to keep pace with increases in the underlying medical trend. If no such adjustments were made and deductibles and copays remained static, the plan would become richer and would eventually exceed the platinum threshold. 

In addition to a typical PPO plan, many employers are providing employees an option that includes higher out-of-pocket cost sharing in exchange for employer contributions to a health savings account and lower payroll deductions. Along these lines, some plans that may become available through the state insurance exchanges may contain lower actuarial values than the type of plan exemplified by the MMI.

In the past year, the MMI plan did not undergo significant design changes. Long-term, employers may be looking for new design concepts that tackle the ongoing cost-control challenge. Design concepts under consideration may include a possible move toward increased use of defined contribution concepts and continued momentum toward high-deductible plans or plans leveraging accountable care organizations (ACOs).

Impact on MMI Family of Four

While several aspects of healthcare reform would have meaningful impact on the cost of insurance coverage, the effect on the total cost of care is very limited for our family of four. For example, medical loss ratio rules and stringent review of health insurance increases may reduce insurer profits and also put pressure on insurers to be as efficient and low-cost as possible. But the cost of care for this family of four is still $20,728, which excludes insurer profits and administrative expenses. 

While efforts to be more administratively efficient may lead to lower premiums, they do not directly affect the cost of delivering healthcare to the MMI family of four. 

http://publications.milliman.com/periodicals/mmi/pdfs/milliman-medical-index-2012.pdf

Comment:  The 2012 Milliman Medical Index (MMI) shows that the average cost of health care for a family of four is now over $20,000 - actually pushing $21,000 ($20,728).

The MMI measures the average spending on health care for a family of four that is insured through an employer-sponsored PPO plan. It does not include the administrative costs or profits of the insurers nor the administrative costs of the employers to manage their health benefit programs. It includes only what is actually spent on health care.

Keep in mind that this represents spending on a relatively healthy component of our society - the healthy workforce and their young healthy families. It does not include those unable to work because of chronic disabilities, nor older, retired individuals who generally have greater health care needs. Thus if you pool everyone together in a universal risk pool, it can be anticipated that average costs would be even higher.

Median household income in 2010 was $49,445. This is not a family unit that is identical to an individual and his family of four with employer-sponsored insurance. Also this does not include the employer's contribution to the health insurance premium which most economists consider to be paid by foregone wage increases. Nevertheless, it does provide a rough perspective showing that health care costs are placing an unbearable strain on household budgets.

Current proposals are aimed at reducing the financial burden on employers, but, as this report indicates, actual health care costs are not reduced by these measures. Thus the financial burden is being shifted more to workers and their families. Since these plans are, on average, slightly better than the gold plans in the exchanges (80 percent medical loss ratio) and most participants in the exchanges will have lower-valued bronze or silver plans, the burden will be even greater for those in the PPACA state exchanges.

We desperately need a more efficient and more equitable health care financing system. It is only as far away as the enactment of an improved Medicare for all.