Milliman’s Annual Health Care Cost Report

Milliman issued its annual report on health care costs for a typical family of four enrolled in a PPO plan sponsored by an employer.  As usual, the report is full of interesting information.  (Milliman Report) The headline numbers are that the medical costs for this family rose to $19,393 in 2011, an increase of $1,319 or 7.3% over 2010.  Of this, the employer paid about $11,385 or 59%; the employee contributed $4,728 or 24% in premium share and the employee had out-of-pocket expenses of $3,280 or 17%, making the employee’s total share  about 40%.  The employee’s share of overall costs has risen steadily over the last few years.  While the overall increase of 7.3% is the lowest in a few years, it is still far ahead of general inflation, GDP growth or personal income increases.

The trend shows a doubling in total cost in 9 years; if that happens again, spending for this family will be almost $40,000 a year.  Milliman notes that employers and insurers are using several tactics to deal with costs, including consumer-driven plans, with their higher deductibles and coinsurance; value-based benefits; medical homes and accountable care organizations.  The report also discusses the potential impacts of the changes in the PPACA, noting that most of those will have little impact on health care costs, although they may have an effect on insurance plan rates among individuals and groups.  Pressure on insurers in regard to rates could mean greater pressure on provider pricing, but given the general state of market power, there is no reason to count on that happening.

Milliman again notes the wide geographic variation in spending in the 16 major metropolitan areas it tracks as part of the index, ranging from $23,362 in Miami to $17,336 in Phoenix, with Miami over a third higher than Phoenix.  The villains in the cost increases are what other research has suggested–provider unit prices are responsible for much more than utilization growth.  Hospital outpatient spending rose 10%, almost all–9%–due to unit price rises; hospital inpatient rose 8.6%, with 8.3% due to hospital price increases; physician spending grew only 4.4%, again basically all price increases; pharmaceuticals spending rose 8%, about three-quarters due to increased prices and the small but growing miscellaneous category, which includes DME, home health, etc, rose 6.9%.

It is obvious, obvious, obvious that policymakers need to focus on controlling price increases by providers, especially hospitals.  And hospitals are doing just great, thank you, as a recent report in our home town of Minneapolis showed that hospitals here had an aggregate $500 million in profits last year, and oh, by the way, these are supposed to be not-for-profit institutions.