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
- 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.
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.