2015 Milliman Medical Index
Milliman, May 2015
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 year.
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.
By Don McCanne, MD
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 taxation?
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.