Employee Healthcare Costs Rise, But We're Not at Tipping Point Yet
The total 2009 medical cost for a typical American family of four in an employer-sponsored PPO will increase by more than 7% this year and those same families will pay $500 more for healthcare than they did in 2005, according to the fifth annual Milliman Medical Index that was released Monday.
Though employees will spend more in 2009, the total medical cost increase is actually the lowest annual trend rate since the MMI started five years ago—and is the third consecutive rate decrease.
Workers will spend nearly 15% more in employee payroll deductions for healthcare compared to 2008. Employee out-of-pocket cost sharing will increase by 5.4%. Meanwhile, employers will see the same 5.4% increase, which is the lowest medical cost increase over the past five years.
Faced with rising health costs and a difficult economy, employers are increasingly transferring healthcare costs to employees through higher premiums and out-of-pocket costs. With another 15% added to employee premiums and 5% in out-of-pocket costs, have we reached a tipping point? Ron Cornwell, principal and consulting actuary at Milliman, says "no.”
"For some employers, it has reached a tipping point. For some employees, it has reached a crisis stage. There are stories out there, but in the aggregate we still see there is still some room in the system to take on some of the burden of these costs right now,” says Cornwell.
Though employees are paying more for healthcare, employers still pay the majority of costs. Milliman said employers contribute 59% to healthcare costs, compared to 24% for employee contributions, and 17% from employee out-of-pocket costs. That said, the difference between the employee and employee cost trend is the largest difference since Milliman started the MMI.
"This statistic reiterates the struggle that employers are experiencing right now with this tight economy and rising healthcare costs," says Cornwell.
Though employers are shifting benefit plans toward greater employee responsibility, businesses are also laying off employees and cutting salaries as a way to achieve immediate cost savings. "In light of this, we find many employers are choosing to implement salary reductions or layoffs now in order to ensure their viability and will consider additional, perhaps more dramatic, changes to their benefit plans in future annual benefit cycles. In other words, we expect benefit plan changes to continue even after the recession subsides,” wrote Milliman.
Macroeconomic effects on healthcare costs
The combination of sagging private business revenues, rising unemployment rates, decreasing government tax revenue, and lower healthcare provider gross revenues are affecting total healthcare expenditures.
Reviewing every category (outpatient, inpatient, physician, pharmacy, and other), Milliman found in the last five years, outpatient and pharmacy rate increases are the largest. During that same time span, physician cost trends were one of the lowest trends though they still comprise the highest component of spending, according to the MMI.
Rising healthcare costs are connected to higher prices for services rather than for utilization of inpatient and outpatient hospital services. In fact, Milliman predicts a flat utilization trend this year in these areas.
Employees are delaying care because of higher out-of-pocket costs and economic instability coupled with more uninsured because of layoffs and employers cutting benefits, according to Milliman.
Though delaying care could keep costs under control in the short-term, patients putting off needed care may lead to long-term health problems and costs. This could also force providers in the short-term to increase prices, says Lorraine Mayne principal and consulting actuary.
"These utilization changes may temporary keep the trend lower, but ultimately may put an upward pressure on the cost for services because healthcare providers will need to continue covering their costs and maintaining their incomes," says Mayne.
Though costs are on the rise, the Milliman researchers found positive initiatives could lower costs, such as improving quality and efficiency, commercial payers focusing on inpatient utilization review, and Medicare concentrating on reducing readmissions and not paying for never events.
Miami tops percentage of national average
Out of the 14 major metropolitan areas that Milliman reviewed for MMI, Miami topped the list with an MMI of $20,282, which is 120% of the national percentage. New York City finished a close second with $19,684 MMI or 117.4% of national percentage.
Phoenix and Seattle, meanwhile, were the lowest MMI with $14,857 (88.6% national percentage) and $15,564 (92.8% national percentage) respectively. The cost differences between the higher and lowest MMI would have been even greater if Milliman had included rural areas.
Kate Fitch, principal and healthcare consultant at Milliman, says the costs of services varied by service area. For instance, though Seattle enjoys the lowest inpatient costs, they rank much worse for outpatient costs. Phoenix, which has the lowest outpatient and physician costs are mid-range for inpatient costs.
Fitch says the costs are related to many factors. Most important are the variations in provider practice patterns and consumer purchasing patterns and to a lesser extent regional variations in costs dealing with doing business in those areas, differing labor costs, and local regulations.
Les Masterson is an editor for HealthLeaders Media.
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