The annual Milliman Medical Index (MMI) measures the total cost of healthcare for a typical family of four covered by a preferred provider plan (PPO).
2011 cost is $19,393 (an increase of $1,319, or 7.3% over 2010)
83.1% – Actuarial value of an employer-sponsored PPO
Relative proportions of medical costs
59% ($11,385) – Employer contribution
24% – ($4,728) – Employee contribution
17% – ($3,280) – Employee out-of-pocket
By Don McCanne, MD
Under the Affordable Care Act (ACA) the largest sector of health care coverage – employer-sponsored plans – remains relatively unchanged. The Milliman Medical Index is a measure of health care costs in the employer-sponsored plan sector, so it is important to understand what the number – $19,393 – really means.
In 2011, $19,393 is the average amount paid for health care for a family of four insured by an employer-sponsored preferred provider organization (PPO). Keep in mind that this large sector is composed of members of the relatively healthy workforce and their young healthy families. It represents what we are paying for health care in the best of circumstances.
It is important to understand that the $19,393 is only the amount paid for actual health care and does not include the administrative costs of the insurers or the employers. It does not include the 15 or 20 percent of the premium that the insurer would consume under the ACA guidelines. However, the $19,393 does reflect the discounts that the PPO receives by contracting with the various providers, so list prices are not taken into consideration.
Milliman does split the costs into 1) the employer contribution to costs paid through insurance (which is not the same as the premium, as explained above), 2) the employee contribution to costs paid through insurance (ditto), and 3) the employee contribution to costs paid out-of-pocket (including deductibles, coinsurance, and co-payments).
Thus the employees’ average payment for actual health care costs is about $8000 or 40 percent of total average health care spending for a family of four. Yet these plans are better than the gold plans under ACA since they have an actuarial value of 83 percent (the insurance pays an average of 83 percent of the costs). Under ACA, most will purchase plans with actuarial values of 60 or 70 percent, so the patient will be responsible for even more of the costs (albeit with inadequate subsidies).
When you consider that the median household income is $50,221 (2009), $8000 is quite a bite out of the household budget, but most economists don’t buy this number. They calculate the employer contribution as having been paid by the employee in forgone wage increases. So it is the employee who is actually paying the full $19,393 in health care costs, plus the expenses consumed by the insurers that don’t appear in this number. Though an apples to oranges comparison, $20,000 in family health care costs and $50,000 median household income are not a dire prediction for the future. Those are today’s numbers!
In a society in which we have expanded the ongoing transfer of wealth up to the top of the chain, the only way we are going to be able to pay this staggering bill is through progressive financing. Middle-income individuals and families are no longer able to pay for their proportionate share of health care. We can do this simply, equitably, efficiently and transparently through the tax system (a tax-financed single payer system), or we can attempt to do it through a fragmented, inequitable, expensive, opaque, complex maze of private and public plans (ACA), acknowledging that we’ll fall far short of covering everyone while threatening hard working, middle-income Americans with financial hardship should they need health care.
So why isn’t this in the forefront of the national dialogue on health care spending? Do we really want the debate to be over slashing Medicare? That framing of the problem is getting us nowhere. Do we continue to let them control the framing as we stand on the sidelines taking potshots? Or do we finally take over the framing and debate the real issues that concern all of us? It’s our choice.
In today’s message on the Milliman Medical Index, I stated, “Though an apples to oranges comparison, $20,000 in family health care costs and $50,000 median household income are not a dire prediction for the future. Those are today’s numbers!”
The “apples to oranges” referred especially to two issues: 1) the family of four with an employer-sponsored PPO is not necessarily the same as a median household, and 2) $11,385 in health care paid by the employer, according to the view of most economists, should be added to the household income, but to the household income of the family of four with an employer-sponsored PPO (a number that I don’t have) and not to the median household with an income of $50,221.
The numbers are still valid.
The average costs of health care, with insurance administrative costs added, is about $20,000 for a four person family in the workforce.
Median household income is about $50,000.
You can adjust these numbers all you want to try to align them better (sort apples from oranges), but you will still end up with the fact that middle-income Americans need more help with their health care costs.