Healthcare Costs Hit Record High, But Growth Rate Slows

The 2013 Milliman Medical Index pegs the annual cost of PPO coverage at 6.3% higher than last year. Physician and other professional services account for one third of annual healthcare spending.

The annual cost of healthcare for the average American family of four set another record in 2012 although the pace of that growth is the lowest it has been in more than a decade

The 2013 Milliman Medical Index pegged the annual cost of PPO coverage at $22,030, a 6.3% or $1,304 increase from the previous year. The family picked up about 42% of the total cost while the employer accounted for 58%, which is comparable to their 2012 cost sharing.

That's the third time the rate of growth has declined since the Patient Protection and Affordable Care Act was enacted in 2010. While the decline in the rate of growth is welcome, families will likely still despair at these cost comparisons provided by Milliman:

• The annual cost ($22,030) is almost as much as the cost of attending an in-state public college for a year.
• The employee payroll deduction ($9,144) now exceeds the cost of the family groceries.
• Out-of-pocket cost ($3,600) for co-pays, coinsurance, and other cost sharing is more than the average U.S. household spends on gasoline each year.

Scott Weltz, principal and consulting actuary in Milliman's Milwaukee office, cites the economic downturn, improved efficiency in the delivery of healthcare, lower drug costs, and the absence of a blockbuster, brand-name drug as contributing to the growth rate decline.

Can the decline be sustained? "It's difficult to say what the future holds with regard to these trends," says Weltz. While Department of Health and Human Services Secretary Kathleen Sebelius would probably like everyone to give credit to the ACA, Weltz notes that the prototypical family of four used for the report is in an employer-sponsored, large group policy with gold standard coverage. The effects of the ACA will more likely be felt in the individual and small group market where access to insurance and the quality of the coverage is more of an issue.

The MMI is comprised of five components: physician and other professional services, inpatient facility care costs, outpatient facility care costs, pharmacy, and miscellaneous other.

Among the report findings:

• Physician and other professional services account for 32% or $6,990 of annual healthcare spending. The 5.2% increase from 2012 is attributed to increased utilization and charge increases.
• Inpatient facility care costs account for $6,855, or 31%, of the family's annual healthcare bill. The annual increase was 5%. Although the number of hospital inpatient days actually declined, increased labor costs, increased liability costs, and new technologies all contributed to the increase.
• Outpatient facility care costs are 18% or $4,037 of total annual costs. This category scored a hefty increase, 9.2%, over 2012. That probably reflects increased utilization as inpatient services shift to outpatient facilities.
• Pharmacy costs totaled $3,296 or 15% of the family's healthcare expenditures. The 7.9% increase is in line with 2010 and 2008 increases. A continued shift to generics was offset by increased utilization of high-priced specialty drugs (typically more than $600 for a 30-day supply).
• Miscellaneous other costs such as durable medical equipment, ambulance services, and home health posted a 7% increase to $851.

Citing concerns about how its numbers were used, Milliman no longer includes comparative healthcare data for 14 cities in this report.