The fifth annual Milliman Medical Index (MMI) measures average annual medical spending for a typical American family of four covered by an employer-sponsored preferred provider organization (PPO) program.
The total 2009 medical cost for a typical American family of four is $16,771.
By Don McCanne, MD
The Milliman Medical Index (MMI) provides us with a very important measure of health care spending in the United States. For 2009, average annual medical spending for a typical American family of four covered by an employer-sponsored preferred provider organization (PPO) program is $16,771. That number should be front and center in our national dialogue on reform. It is important that we understand what it means.
Over 160 million of us receive our health care coverage through an employer. This sector is the healthy workforce and their young healthy families. This is the largest and least expensive sector to insure. It is the sector that we have presented to the private insurance industry either to insure risk or to provide administrative services for self-insured employers.
Group insurance wastes less on non-medical services than does insurance for individuals or small employers. So between the greater efficiency of employer-sponsored plans, and the low-cost, healthy status of the population insured, the spending on this group (represented by the MMI) shows us the best value that we can expect under our current multi-payer system of financing care.
The MMI is nominally broken down into an employer contribution ($9,947), an employee contribution ($4,004), and employee out-of-pocket costs ($2,820). But virtually all economists agree that the employer contribution is paid by the employee in the form of forgone wage increases. So the entire $16,771 represents the average health care costs for a family of four covered by an employer-sponsored PPO. That is what the average family is actually paying today.
Since this is average, those families with greater medical expenses are actually paying more in out-of-pocket costs. So reform proposals need to take into consideration not only the average $16,771 per family, but also the additional costs for those families with greater health care needs.
It is also important to understand that that the combined employer and employee contributions ($9,947 + $4,004 = $13,951) do not represent the premiums paid. Although the average family is defined as a family with an employer-sponsored PPO, the PPO reflects only the fact that the health care system provided discounts for the care provided. The employer and employee contributions represent the actual payments made for health care (minus the out-of-pocket spending). The MMI specifically excludes the non-medical administrative component of health plan premiums.
Read that again. The MMI ($16,771) represents the actual payments to the health care delivery system and excludes the funds retained by the insurance industry for administrative costs and profits.
Many in the policy community believe that health care costs that exceed 10 percent of family income create a financial hardship for that family. Based on the MMI, the average family with an employer-sponsored PPO would have to have an income of $167,710, though adding the administrative costs of private plans plus any additional out-of-pocket spending that might be required would drive that income threshold further upward.
The 2007 median household income was $50,233. Although that does not represent precisely the family of four with employer-sponsored coverage, it does give us a rough perspective of why the numbers no longer work. Any effective reform proposal based on private plans would have to provide taxpayer-financed subsidies for a typical family with an income below $167,000, plus additional subsidies for administrative costs, and even more subsidies for larger than average health care spending. That means that almost the entire workforce would require subsidies.
So what does the MMI tell us? Only an idiot would isolate the largest and healthiest sector of society into the collective employer-sponsored risk pools, assign a package of benefits to each family, assess contributions to be paid based on that package, shift all non-benefit costs to that family, add a hidden charge for wasteful administrative services, and still leave many families exposed to financial hardship. What does that say for those members of Congress who are hashing out this model of health care reform behind those closed doors?
We need a health care financing system that is funded equitably, based on ability to pay, and that uses the power of our own public monopsony to be certain that each of us receives the care that we need. The MMI tells us that it’s time to enact a single payer national health program.