By Chris Girod, Sue Hart, Scott Waltz
In 2017, the cost of healthcare for a typical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan is $26,944, according to the Milliman Medical Index (MMI).
Key findings of the 2017 MMI include:
1. The MMI’s annual rate of increase is 4.3%. This is the lowest rate since we began tracking the MMI in 2001. Yet the total dollar amount is still bracingly high. Of the $26,944 spent by the MMI’s family of four, $11,685 is paid by the employee, through a combination of $7,151 in payroll deductions for premium, and $4,534 in out-of-pocket costs incurred at time of care.
2. Prescription drug trends are lower, but still high. For the first time since 2013 and 2014, the family of four’s prescription drug trends have decreased in two consecutive years. Still, the 2017 prescription drug cost increase of 8% is more than double the medical increase of 3.6%.
3. Employees pay a bigger piece of the healthcare cost pie. Through their payroll deductions and through out-of-pocket expenses incurred when care is received, employees now pay for about 43% of expenses and employers pay the other 57%. The difference between these two shares has gradually narrowed since 2001, when employees contributed 39% and employers contributed 61%. High growth in per-employee healthcare expenditures have pushed employers to limit their contribution increases to amounts below the rate of healthcare inflation.
Some stakeholders have held out hope that federal healthcare reform efforts would help control healthcare cost growth. So far, those efforts have had relatively little direct impact on the MMI, because the MMI represents healthcare costs in an employer-sponsored health plan, while the primary focus of healthcare reform has been on the individual insurance marketplace and Medicaid. The employer market tends to be one of the most stable markets for health insurance companies, and one of the most financially important for healthcare providers such as hospitals and physicians. As discussed in a later section of this report, providers receive higher payment for patients in employer-sponsored plans, for the exact same basket of services, than they do for other insured patients. Employers and employees have been subsidizing other markets for many years.
Footnote 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 insurance company profit loads.
By Don McCanne, M.D.
Much attention is paid to premiums and deductibles of insurance plans in the United States. A much more important number is what we are actually paying for health care. The Milliman Medical Index (MMI) represents the total average cost of actual health care for a hypothetical family of four with an employer-sponsored PPO. For 2017, that cost is $26,944 ($27,000 rounded – the number to remember).
Although not comparing identical population sectors, nevertheless the burden of health care costs can be approximated by contrasting the MMI with the median household income, which is $56,516 for 2015 – thus health care costs for a typical family of four are close to one-half of the median household income.
Of interest is the fact that the MMI does not include plan administrative expenses nor insurance company profits – just health care costs (the portion of the premium nominally paid by the employer, the portion of the premium paid by the employee through payroll deductions, and the out-of-pocket medical expenses paid by the employee). Also the percentage that families nominally pay has been increasing – now 43 percent – though they also actually pay for the employers’ contributions as well through forgone wage increases. Also, though the increase in the MMI from last year was only 4.3 percent, in dollars it is an $1118 increase – an amount that would add an additional significant burden to most household budgets.
Although current negotiations for replacement health care legislation are taking place behind closed doors, numerous sources have indicated that the most important goal stated by the negotiators is to reduce the premiums paid for insurance. Very little attention is being paid to actual health care costs (except for rhetoric about markets and competition, which has very little application to health care spending).
Why this emphasis on premiums? Frankly, when people need to buy health insurance, they want to know what it is going to cost them. For the 80 percent of people who remain relatively healthy, that means that they want to know what the premium, or their share of the premium, will be. Studies have shown that the healthy will accept higher deductibles and narrower networks in order to get lower premiums.
So how do you keep premiums low? You shift the costs from the insurer to the patient, and there are several methods of doing that, all of which are currently under consideration. As mentioned, the most obvious is to increase the deductibles, and that is why we are now seeing deductibles in the thousands of dollars. Other cost sharing such as copayments and coinsurance also shift costs to the patients. The negotiators are also considering reducing the essential health benefits that the plans are required to cover so that individuals can “buy only the insurance that they need.” Not only does this defeat the purpose of pooling risk, but nobody can predict their own health care requirements for the following year, so benefits omitted again would have to be covered out-of-pocket by the patient. Also insurers can reduce spending by establishing narrow networks and contracting with the cheapest providers, but sometimes care must be obtained out-of-network, and, again, that shifts costs to the patients. Tiering of benefits is used to place more expensive benefits in a higher tier level for which the patient must bear a much greater out-of-pocket cost (not to mention that it discourages individuals who will need the expensive services or products from purchasing those plans, saving the insurer money, thus lowering premiums). In essence, you lower the price of insurance premiums by destroying the insurance function of sharing risk equitably. Is this really what Americans want?
Making health care less affordable for patients has two adverse consequences: it creates financial hardships for patients who cannot avoid expensive health care, and it causes patients to forgo beneficial health care services that they really should have, thus impairing health outcomes.
A well designed single payer national health program avoids both of these consequences while using policies that are even more effective in slowing the increases in actual health care spending (substantial reduction in administrative waste, global budgeting of national health expenditures, separate, more effective budgeting of capital improvements and system capacity, negotiated and administered budgets for hospitals and other institutions, and negotiated rates for health care professionals, pharmaceuticals, and medical supplies).
When they talk about premiums and say it’s about “access” (but remain silent on paying for health care), challenge them. It’s about health care reform that works for all of us – an improved Medicare for all.