2016 Milliman Medical Index

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By Christopher S. Girod, Scott A. Weltz, Susan K. Hart | 24 May 2016

In 2016, the cost of healthcare for a typical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan is $25,826, according to the Milliman Medical Index (MMI).1

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Key findings

  • Our lowest annual increase in 15 years still pushes the MMI over $25,000. The cost of care for the typical American family of four has more than tripled since its value of $8,414 in 2001. And the current level of $25,826 is just an average. Healthcare spending for any given family can range from $0 into the millions of dollars.
  • The percentage increase in the MMI is at its lowest rate ever. However, even at 4.7%, which is the lowest annual increase since we first measured the MMI in 2001, the rate of increase is still well above growth in the consumer price index (CPI) for medical services,2 and far surpasses the average 2% annual increase in median household income between 2004 and 2014.3 More than ever before, health insurance is a critical component of a family’s financial security, and yet it continues to become less and less affordable.
  • Employee expenses increase at rates higher than total healthcare spending. At $11,033, the employee’s total cost increased by 5.3% from 2015, while the employer’s cost increased 4.2%. In fact, only once in the past 10 years have employee costs increased at a lower rate than employer costs. Back in 2001, the first year we measured the MMI, employers paid 61% of costs while employees paid 39%. In 2016, the same split is 57% and 43%. Employees are shouldering more of the healthcare cost burden than they were 15 years ago.
  • Prescription drugs, the most rapidly growing MMI component, are nearly 17% of total healthcare spend. In 2016, the MMI family’s prescription drug costs will reach $4,270. That’s almost four times as much as the $1,111 in prescription drug expenditures the family had in 2001. Prescription drug expenses grew at 9.1% from 2015 to 2016, a lower rate than last year’s 13.6% increase.

Specialty drugs now constitute approximately 35% of total prescription drug costs, and nearly 6% of total healthcare spend.4 Fifteen years ago, specialty drug costs were a small sliver of the healthcare cost pie. Although increases in total drug costs may spike or moderate in the short-term as new drugs are introduced or as patents expire, long-term expectations are that these very expensive drugs will continue to be a growing proportion of total healthcare costs.

The good news is that, over the past 15 years, annual rates of cost increase have declined dramatically, from 10% per year to less than 5% (see Figure 2). We seem to be making progress in wrestling the curve down to sustainable levels. In this report, we explore how healthcare costs have reached their high levels, and what efforts hold hope for continuing the downward trend in growth rates.

1Milliman 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 profit loads.

2Over the 10-year period ending March 2016, CPI-medical has increased by approximately 3.2% per year, while the MMI has increased by 6.8% per year.

3U.S. Census Bureau. Income Data: Historical Tables by Household. Retrieved May 12, 2016, from http://www.census.gov/hhes/www/income/data/historical/household/.

4These specialty drug costs are before any savings generated by manufacturer rebates. After a prescription is filled, the drug manufacturer may give a significant rebate to the pharmacy benefit manager or health plan. Patients, unfortunately, do not benefit from these rebates at point of sale, although depending on the contractual arrangements in place, rebates may reduce healthcare premiums indirectly, if they make their way all the way back to the insurance company (or self-funded employer) and are deployed to reduce premiums.