Cost of Healthcare Rises More Slowly, but Don't Tell That to Workers

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The smallest overall increase in the MMI in 15 years is masked by the fact that employees are bearing an increasingly large share of healthcare costs.

The average healthcare cost for a family of 4 rose more slowly in 2015 than it has since the start of the millennium. Not that the typical employee could tell the difference, however.

The Milliman Medical Index (MMI), released today, pegged the cost of care for a family to $25,826, more than triple the cost in 2001, which was $8414. The rate of growth in care costs was 4.7%, the lowest increase since the MMI began. But that “good news” masks the fact that healthcare costs continue to rise faster than the consumer price index (CPI) for medical care, and the fact that employers continue to transfer more costs onto their workers.

MMI reports that over the 10-year period ending in March, CPI medical has gone up an average of 3.2% per year, while the MMI itself has climbed 6.8% per year.


The overall slowdown in medical costs for 2015 was not felt evenly: Employee expenses reached $11,033 on average, up 5.3% from the prior year, while the share for employers rose 4.2%. In fact, the report stated that only once in the past decade have costs climbed faster for employers than employees.

That finding would explain new poll results from the Kaiser Family Foundation (KFF), which recently found that while most who purchase their own health coverage through the Affordable Care Act are happy to have it, fewer are content with the cost. Satisfaction with premium costs fell from 68% in 2014 to 59% in 2016, and satisfaction with deductibles fell from 60% in 2015 to 51% this year.

For the typical family of 4, employer healthcare costs averaged $14,793 in 2016, while the employee contribution was $6717 and the family’s out-of-pocket costs were $4316.

As with most analyses of healthcare costs, the MMI zeroed in on the rising cost of prescription drugs, and specialty pharmaceuticals in particular. This drug category consumes 35% of all prescription costs, consuming 6% of all healthcare spending. Fifteen years ago, specialty pharmaceuticals barely registered in healthcare spending. KFF polling has consistently found that high drug costs are the one healthcare-related issue in which Democrats, Republicans, and independents are united in their frustration.

The MMI found that all prescription drugs now account for 17% of healthcare spending, with the cost for a family of 4 coming to $4270 on average. That is nearly 4 times as much as the $1111 cost for a family in 2001, showing that drug costs, while still only a share of the healthcare pie, are an ever-increasing piece of it.

Report authors found good news, saying, “Over the past 15 years, annual rates of cost increase have declined dramatically, from 10% per year to less than 5%. We seem to be making progress in wrestling the curve down to sustainable levels.”

Another bright spot, they write, is the growing role of technology, including telemedicine. While coverage for this mode of delivery varies, MMI researchers say it’s beginning to take hold, and can expand access for certain specialty services that help patients avoid hospitalization, such as behavioral health services and diabetes care.

The report also mentions the growing importance of accountable care organization, new payment models, and rise of electronic health records (EHR), in helping the system convert from fee-for-service to payment for value.