By Christopher S. Girod, Susan K. Hart, Scott A. Weltz
Milliman Research Report, May 21, 2018
In 2018, the cost of healthcare for a typical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan is $28,166, according to the Milliman Medical Index (MMI).
2018 MMI Components of Spending
31% ($8,631) – Inpatient
19% ($5,395) – Outpatient
29% ($8,275) – Professional services
17% ($4,888) – Pharmacy
4% ($995) – Other (Home health, ambulance, DME, prosthetics)
Employers pay more; employees pay a lot more
The MMI’s healthcare expenditures are funded by employer contributions to health plans and by employees through their payroll deductions and out-of-pocket expenses incurred when care is received. Over the long-term, we have seen employees footing an increasingly higher percentage of the total. That trend continues in 2018, with employee expenses increasing by 5.9% while employer expenses increased by only 3.5%.
Employees’ share of healthcare costs
The total cost of healthcare for the MMI family of four is shared by employers and employees. To clearly define each payment source, we use three main categories:
1) Employer subsidy. Employers that sponsor health plans subsidize the cost of healthcare for their employees by allocating compensation dollars to pay a large share of the cost.
2) Employee contribution. Employees who choose to participate in the employer’s health benefit plan typically also pay a substantial portion of costs, usually through payroll deduction.
3) Employee out-of-pocket cost at time of service. When employees receive care, they also often pay for a portion of these services via health plan deductibles and/or point-of-service copays.
Relative Proportions of 2018 Medical Costs
56% ($15,788) – Employer contribution
27% ($7,674) – Employee contribution
17% ($4,704) – Employee out-of-pocket
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.
Real Median Household Income in the United States
Federal Reserve Bank of St. Louis; FRED – Economic Data
Historical Income Tables: Families
United States Census Bureau
Table F-8. Size of Family – Families by Median and Mean Income
Families with four people:
Median income $90,746 (2016)
By Don McCanne, M.D.
The Affordable Care Act was supposed to make health care affordable for all Americans while protecting the segment of health care coverage that seemed to be working well – employer-sponsored health plans. So the typical working family of four now pays through premiums, cost sharing and forgone wage increases (for the employer contribution) an average of $28,166.
For this select population – employed families of four with insurance through work with a median income for a family of four ($90,746) – the average payment is 31 percent of income. Of course, this is a family that is doing well. If a family with a median household income ($59,039) spent the same amount on health care it would be 48 percent of income.
One more significant point. That $28,166 is what is actually spent on health care. It does not include health plan administrative expenses nor insurance company profits, and we know what that means.
People want to know what they would be paying under a single payer Medicare for all system. When they ask, they should be reminded that they first need to understand what they are paying now. They understand the premium that is deducted from their paychecks, but they need to find out how much the employer is paying because that represents a reduction in their wages. They also should look at what they pay out of pocket for deductibles and other cost sharing while keeping in mind that they need to maintain reserves should they receive a major hit in their health. They should also realize that over half of health care in the United States is paid through our taxes, and most of that health care spending is relatively opaque for the average individual. Taxpayer-funded health care spending includes Medicare, Medicaid, CHIP, VA Health, military medicine, Indian Health Service, Public Health Service, much of the cost of health insurance purchased for federal, state, and local government employees, and the tax expenditures from the exclusion of employer contributions for medical insurance premiums and medical care (tax exclusion of $236 billion in 2018!). So that $28,166 represents only the most direct spending on health care for that individual family; they are paying much more through the tax system.
People want to know what the tax for a single payer system would be that would be deducted from their paychecks. Then they want to compare that with the current deduction for their employer-sponsored plan, not considering that that is only a very small fraction of the total amount they are actually paying. Because each person’s situation is different, it is impossible to give a precise dollar amount that they would be paying under an improved Medicare for all, but we can say that the amount will be equitable – fair – based on progressive taxes, and that, for all but the wealthiest, will be less than they are paying now (not to mention that they are assured coverage for life). And for the very wealthy, it would be painless anyway. They wouldn’t even know what are paying for health care through their taxes unless their accountant told them.
So remember the Milliman Medical Index – the typical working family of four is already paying on average over $28,000 for employer-sponsored health care, but also don’t forget how much we are already paying in addition through the tax system. We can’t just walk away. We need to enact an equitable financing system that ensures that everyone receives health care that is affordable. That would be a well-designed, single payer, improved Medicare for all.
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