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Healthcare Costs Up 7.8% for PPO Plans; Miami, New York City Most Expensive

 |  By cclark@healthleadersmedia.com  
   May 13, 2010

The cost of providing PPO plan healthcare to a family of four went up 7.8% to $18,704 for 2010, or $1,303 more than in 2009 and "the highest (dollar increase) we have seen in the last 10 years and since the inception of this index," reports the Milliman Medical Index issued yesterday.

Interestingly, the average costs were not attributed to more patients getting care, but on higher costs of certain kinds of care such as outpatient and inpatient services, which represent 17% and 31% of all costs. "The largest dollar increase this year was for inpatient facility care, which increased by $498 annually," the report says.

Although physician costs are the biggest single piece of the cost pie, representing 33%, the rate of increase of their cost of care dropped from 6% to 5.2%.

The report said that hospital services and physician services contributed $820 and $301 to the $1,303 increase, while pharmacy contributed $151.

The report also noted wide disparity in costs by geographic region, with Miami leading the nation at $22,089, followed by New York City, $21,477; Chicago, $20,412; Boston, $19,654; Memphis, $19,146; Philadelphia, 18,933; Minneapolis, $18,666; Washington, D.C., $18,548 and Los Angeles, $18,098.

The lowest cost cities were Dallas at $18,030; Denver, $17,817; Atlanta, $17,122; Seattle $17,007; and Phoenix, $16,071.

Miami, New York City, and Chicago had costs at least 10% higher than the national average.

Prescription drugs were another driver of costs, the report said, although it increased at only 6.1%, lower than the 7.8% overall. But of the 6.1%, 17% was due to increased number of prescriptions while the other 83% was due to unit cost increases.

Other elements of the report include the notation that employers picked up a larger share of the healthcare cost increase, "a reversal from three previous years that saw employees taking on more of the increase. Many employers expected healthcare reform would bring wide-scale changes to the healthcare landscape and preferred a wait-and-see approach before making changes to their programs that might disadvantage them in the new legislative environment," the report said.

Of the $18,074 total average cost for a family of four, the employer paid about 59% while the employee paid 24% in employee contributions and 17% in out-of-pocket costs such as co-pays, deductibles, and other time-of service charges.

For employers, the report explains, "Healthcare costs continue to increase at rates exceeding most other costs of doing business .... For the near term, the underlying drivers of increasing healthcare costs are not expected to immediately change."

Also, the report says, "For now, the onus of control remains with insurers, who will attempt to put pressure on providers to lower costs to a level that approved premium rates can support. There may be more extensive shifts in market dynamics in 2014, when the government takes on an even larger proportion of payment responsibility due to expansion in Medicaid, the creation of exchanges, and the availability of subsidies for certain lower-income individuals."

However, the report says, some immediate changes from healthcare reform, such as increasing dependent coverage up to age 26 and elimination of lifetime and annual benefit maximums, will cause a direct shift in costs from employees to employers.

Because specifics about new legislation have not yet been defined, the Milliman report says, "many employers are choosing to delay changes to their benefit plans for future annual benefit cycles, although it is very possible that these changes could be dramatic."

The Milliman's Group Health Insurance Survey is an 18-year-old effort that provides a way to measure rate levels and experience for a uniform population and benefit design for HMOs, PPOs, and consumer-driven health plans.

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