Monday, June 1, 2015

qotd: 2015 Milliman Medical Index

May 2015
2015 Milliman Medical Index

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 according to the Milliman Medical Index (MMI). The
amount will almost certainly surpass $25,000 in 2016.

* This year, the growth rate has again climbed, increasing to 6.3% in
2015, largely due to increases in prescription drug costs. Even at last
year's low-water mark of 5.4%, the annual rate of increase is still well
above growth in the consumer price index (CPI) for medical services.

* Costs for our typical family have more than doubled over the past decade.

* A family of four with the MMI plan is likely to reach the Cadillac
tax much sooner if the plan is provided by a smaller employer and if
trends exceed recent levels.

* Prescription drug costs spiked significantly, growing by 13.6% from
2014 to 2015.

* The total employee cost (payroll deductions plus out-of-pocket
expenses) increased by approximately 43% from 2010 to 2015, while
employer costs increased by 32%.

* Over the 10-year period ending March 2015, medical CPI has increased
by approximately 3.3% per year, while the MMI has increased by 7.3% per

The family of four represented by the MMI has total annual healthcare
expenditures of $24,671, of which $10,473 is paid by the family, $6,408
through payroll deductions, and $4,065 in out-of-pocket expenses
incurred at point of care. These figures represent significant (and
increasing) percentages of family income, particularly for middle-income
families. The U.S. median annual household income in 2015 is
approximately $53,800.

With income growth at slightly less than 2% per year and healthcare
expense growth over 6%, health insurance will likely become even less
affordable for many working families and for employers.


Comment by Don McCanne

Health care for a typical family of four with an employer-sponsored PPO
health plan now costs about $24,671, according to this update of the
Milliman Medical Index. This has increased 6.3% since last year, well in
excess of the rate of increase in the CPI. The claim that we have
controlled health care costs rests on very tenuous grounds.

For perspective, in 2013 the median family household income was $65,587.
Obviously, if there were no government programs to help pay for heath
care, the typical American family could not afford the average costs of
health care nor could they afford an insurance policy that would cover
most of those costs.

We do have a multitude of programs that result in transfers of income
that make it possible for a large majority to have some sort of
coverage. Examples are Medicaid for low income individuals funded by
progressive taxes, Medicare for the elderly and individuals with
long-term disabilities partially funded by payroll taxes on workers and
by general revenues, government supported safety net institutions,
subsidies for lower income individuals and families enrolled in ACA
exchange plans, and a multitude of other transparent and opaque forms of
income transfer.

These programs and the income transfers - especially taxes - that make
them possible are complex and administratively burdensome and are not
always equitable. For instance, the tax expenditures that help pay for
the largest sector of health care coverage - employer-sponsored health
plans - are regressive since the tax benefit increases with an increase
in income, leaving lower income individuals and families with little or
no tax benefit. Also, the very high administrative costs of the most
common method of administering health care payments - private health
plans - are relatively fixed and thus the percentage of income consumed
is inversely related to the amount of income, with lower income
individuals paying a higher percentage of their incomes for these
wasteful services.

The complexity of this highly fragmented system of paying for health
care is unique in the United States and is a primary contributor to the
dysfunctions of our system that result in its very high costs and in its
inequities that leave tens of millions underinsured and tens of millions
more with no insurance at all.

These high health care costs will result in greater financial hardship
for workers and their families. Either the premiums will exceed the
threshold for excise taxes ("Cadillac tax") which would be paid either
directly or indirectly by the employee, or the employer will reduce
benefits to avoid the excise tax, thereby increasing out-of-pocket costs
for the employee, or perhaps a combination of the two.

If we had a single payer national health program we could more
effectively slow the rate of increase in health care spending without
compromising health care access and quality, we could dramatically
reduce the profound administrative waste in our system, and we could
fund the entire system with much more equitable transfers through the
tax system that would make health care affordable for everyone.

Remember, the Milliman Medical Index - now close to $25,000 - shows us,
that, without transfers, middle- and low-income families would not
receive adequate health care. Most Americans believe that everyone
should have health care, but they are more comfortable with paying a
premium than with paying a tax. But if you removed all of the opacity in
financing health care today, and you showed families what the premium
would have to be for a plan that actually did cover an average of
$25,000 and then compare that with the amount of taxes they would be
paying in a transparent progressive tax system that funded health care,
how many people would really want to pay significantly more in premiums
than they would in taxes simply because of their aversion to government

Only high-income individuals would pay more in a single payer national
health program. You say that is not fair? Then keep paying that $6,408
in payroll deductions for your family premium, plus an average of $4,065
in out-of-pocket expenses, plus $14,198 in forgone pay increases that
your employer is paying towards your family premium. Maybe a better
awareness of that last relatively opaque number, combined with the rest,
might give you pause. $25,000 is a lot of money.

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