2011 Milliman Medical Index

Story behind MMI - Splash

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By Christopher S. Girod, Lorraine W. Mayne, Scott A. Weltz | 11 May 2011

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). The 2011 MMI cost is $19,393, an increase of $1,319, or 7.3% over 2010. Even though the rate of increase is slowing from prior years, it has taken fewer than nine years for such costs to more than double. In 2002, the cost of healthcare for the typical family of four was $9,235.

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The MMI includes an analysis of costs paid by the employer and costs paid by the employee. An increasing portion of the cost has been borne by the employee—in nine years, the total cost paid by the employee has also more than doubled. In 2002, the employee share of these costs was $3,634 and it now stands at $8,008.

Specific findings

  • Between 2010 and 2011, the MMI increased by $1,319 or 7.3%.
  • Employees' share of the total cost is at an all-time high, having increased from 36.8% in the first year of the MMI (2005) to 39.7% in 2011
  • The annual rate of increase for the MMI is down 0.5% from 2010 to the lowest rate since the inception of the MMI, but is still in excess of spending increases for most other sectors of the economy.
  • Even though hospital spending is only 48% of total healthcare spending, increases in facility spending (inpatient and outpatient combined) account for over 60% of this year's total increase in cost of healthcare.

Market dynamics affecting healthcare costs

  • Healthcare reform is an important dynamic but not the primary explanation or source of relief for ongoing health spending trends.
  • Substantial geographic differences in costs remain even as efforts continue to improve efficiency and manage costs.
  • Insurers, providers, and employers are making efforts to deliver more healthcare value per dollar spent.
  • Employers are balancing more considerations than ever in designing benefit plans and they are serious in pursuing greater cost efficiency.

The findings for 2011 mark the fourth straight year of MMI trends in the 7%-8% range. This apparently steady period should not be misinterpreted as evidence of a stable environment. Trends in healthcare spending still far exceed most other goods and services. Health benefits make up an ever-increasing share of employers' costs of business and employees' household budgets.1 Combined with the advent of federal healthcare reform, many stakeholders are looking for ways to wring the maximum value out of every healthcare dollar.

In this year's MMI report, we examine the components of current trend, explain the shifting sources of payment, and describe how some health plans, providers, and employers are responding. While healthcare reform changes are part of the current environment and upcoming changes, these changes are not the only force affecting healthcare cost trends. At the most basic level, healthcare costs are determined by the quantity of services provided at a given cost. To the extent that healthcare reform affects healthcare utilization and/or unit costs, it will contribute to future healthcare cost trends. Ultimately it is the change in the underlying cost of care that matters.