2018 Milliman Medical Index

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By Christopher S. Girod, Susan K. Hart, Scott A. Weltz | 21 May 2018

In 2018, the cost of healthcare for a typical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan is $28,166 (see Figure 1 below), according to the Milliman Medical Index (MMI).1

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Key findings of the 2018 MMI include:

Bad news: The MMI increased by $1,222 from 2017 to 2018. For more than 10 years now, the MMI has been increasing at an average of just over $100 per month.

Good news: At 4.5%, the MMI’s annual rate of increase is nearly the lowest in 18 years. Only last year was lower, at 4.3%. Over the 18 years since the MMI was first measured in 2001, the annual rate of increase has averaged 7.4%. But for eight years in a row now, the rates have been below that average. As discussed later in this report, although the MMI’s dollar amount continues to grow, the rate at which it grows is clearly slowing.

Prescription drug trends are down for the third consecutive year. Annual increases in prescription drug expenditures for the family of four have declined to levels last seen just prior to the great hepatitis C treatment spike of 2015 (see Figure 2 on page 4). This year’s increase is 6.0%. Drug costs will continue to be prone to volatility, however, as new and expensive drugs enter the market, lower cost alternatives emerge, and drug price changes are deployed very quickly.2

Employers pay more; employees pay a lot more. The MMI’s healthcare expenditures are funded by employer contributions to health plans and by employees through their payroll deductions and out-of-pocket expenses incurred when care is received. Over the long-term, we have seen employees footing an increasingly higher percentage of the total. That trend continues in 2018, with employee expenses increasing by 5.9% while employer expenses increased by only 3.5%.

For this year’s edition of the MMI, we look back in time and explore what is behind the long-term slowdown in cost increase, drawing on input from Milliman’s clients. The popular media is full of stories about the high cost of new healthcare technologies, expensive life-changing or even life-saving new drugs, and the devastating financial impact of healthcare needs on patients and their families. And yet quietly, outside the spotlight, our healthcare financing and delivery systems have evolved in ways that seem to be producing consistent, long-term reductions in expenditure growth rates.

The various major stakeholders in healthcare—healthcare providers and suppliers, plan sponsors, and plan participants—have each contributed in their own way to the declining growth rates. Government also gets some credit, although it is not typically viewed as a stakeholder in the employer health plan market that the MMI measures. However, as we explore in this report, each of these stakeholder groups operating in their own self-interest also hold keys to the barriers which prevent us from taming costs even further.

1The Milliman 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 insurance company profit loads.

2The MMI’s prescription drug expenses do not reflect the savings from most manufacturer rebates. Those rebates are discussed more in a later section of this report.