Milliman: Annual Healthcare Costs Doubled in Under Nine Years

It has taken less than nine years for healthcare costs to double for the average family of four covered by a preferred provider organization, the 2011 Milliman Medical Index shows.

And there's more bad news, employers are passing more of the costs onto their employees.

The 2011 MMI healthcare cost is $19,393, a 7.3% or $1,319 increase over 2010. But here's some good news, that's the lowest annual rate of increase in more than a decade.

The report looks at five components of the MMI: inpatient facility costs, outpatient facility costs, professional services, pharmacy and other. Among the findings:

• Hospital inpatient costs accounted for more than one-third of the $1,319 increase. While utilization was flat, costs per day increased by more than 8% from 2010 to 2011. Inpatient costs totaled $6,068 or 31% of a family of four's total annual healthcare bill.
• Increased utilization helped grow the cost of outpatient facility care by 10% to $3,404. For the third year the increase in the cost of outpatient facility care outpaced all of the other MMI components.
• The total dollars paid for physician care increased by 4.4% to $6,329. Physician services accounted for one-third of the total cost of care.
• Pharmacy costs rose by 8% to $2,847. Higher average drug prices accounted for about 75% of the increase with higher usage accounting for just 25% of the increase.
• The cost of miscellaneous other services such as durable medical equipment, ambulance services and home health posted a 6.9% increase to $745.

Lorraine Mayne, principal and chief actuary at Milliman, said she was surprised by the increase in healthcare costs now being borne by each year by employees. "Employee out-of-pocket cost sharing and employee payroll deduction increased by 9.2% and 9.3%," she said in a telephone interview from her Salt Lake City office. "Employees will pay $8,008 more for healthcare in 2011 than they did in 2010."

Mayne says the culprit is probably health plans with higher deductibles, higher co-insurance, and higher copayments.

In addition to looking at costs on a nationwide basis, the Milliman Medical Index also looks at the healthcare costs in 14 cities across the country, including Philadelphia, Atlanta and Memphis. Healthcare costs for a family of four ranged from $17,336 in Phoenix to $23,362 in Miami. In six of the 14 cities studied healthcare costs exceeded $20,000 annually for a typical family of four,

Mayne said the geographic cost differences can be explained in terms of utilization patterns, how providers practice in one city versus another, the differences in standard medical procedures from one city to another, and the competition. "Healthcare is a very local industry."