Friday, May 23, 2014

qotd: 2014 Milliman Medical Index

May 20, 2014
2014 Milliman Medical Index
By Christopher S. Girod, Lorraine W. Mayne, Scott A. Weltz, Susan K. Hart

$23,215. That's how much is spent in 2014 on healthcare for a typical
American family of four covered by an average employer-sponsored health
plan according to the 2014 Milliman Medical Index (MMI).(1) And yet
while the amount has more than doubled over the past 10 years, growing
from $11,192 to $23,215, the 5.4% growth rate from 2013 to 2014 is the
lowest annual change since the MMI was first calculated in 2002.

Although the annual rate of increase is down, it is still well above the
rate of growth in the consumer price index (CPI).(2)

Employers pay the largest portion of healthcare costs, contributing
$13,520 per year, or 58% of the total. However, increasing proportions
of costs have been shifted to employees. Since 2007, when the economic
recession began, the average cost to employers has increased 52% — an
average of 6% per year — while the expenses borne by the family, through
payroll deductions and out-of-pocket costs, have grown at an even faster
rate, 73% (average of 8% per year).

So far, the emerging reforms required by the Patient Protection and
Affordable Care Act (ACA) have had little direct impact on the cost of
care for our family of four in 2014 because this family tends to be
insured through large group health plans. Some of the most far-reaching
reforms are focused on access to insurance in the individual and small
employer markets. Additionally, while the reforms are having immediate
impacts on premium rates in those markets (the individual market, in
particular), it is unclear whether they will ultimately have meaningful
effects on growth in the cost of healthcare services.

(1) The Milliman Medical Index is an actuarial analysis of the projected
total cost of healthcare for a hypothetical family of four covered by an
employer-sponsored preferred provider organization (PPO) plan. Unlike
many other healthcare cost reports, the MMI measures the total cost of
healthcare benefits, not just the employer's share of the costs, and not
just premiums. The MMI only includes healthcare costs. It does not
include health plan administrative expenses or profit loads.

(2) Over the 10-year period from 2004 through 2014, CPI has increased by
approximately 2.3% per year, while the MMI has average annual increases
of 7.6%.

Milliman Research Report: 2014 Milliman Medical Index (12 pages)


Comment by Don McCanne

The Milliman Medical Index (MMI) is an important number because it
represents the actual cost of health care, excluding health plan
administrative costs and profits, for a typical family of four insured
by an employer-sponsored PPO (preferred provider organization). Keep in
mind that the workforce and their young families are a relatively
healthy sector of our society, yet the health care costs for that family
in 2014 are now $23,215.

We are reassured that the rate of increase is the lowest in years - only
5.4%. But that is not so reassuring when you consider that the rate is
still well above the rate of growth in the CPI (consumer price index).
In fact, over the last ten years, the MMI has increased an average 7.6%
whereas the increase in the CPI has averaged only 2.3%.

Although the rate of increase in the MMI has decreased to 5.4%, that is
still a one year increase in health spending of $1,185. That is quite a
hit for a family that has seen stagnant wages for the last couple of

Another important observation is that increasing proportions of the cost
increases have nominally been shifted to the family - through higher
payroll deductions and greater out-of-pocket costs. In actuality, most
economists agree that the employer's share of the costs is actually paid
by the employee in the form of forgone wage increases.

Median household income for 2012 was $51,017. Although that does not
represent the same family unit as the MMI, it does give a very rough
idea of what a strain that $23,215 imposes on family budgets. It is
clear that the financing of health care must be progressive.

Thomas Piketty's treatise on Capital in the 21st Century describes our
inequality in income and wealth. It takes very little imagination to see
how a publicly financed single payer system would slightly temper the
inequities while ensuring health care for everyone.

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