The saying goes, “you pays your money and you makes your choice.” In 2012, if you have a bolus of $20,700 to spend, you can choose between a health plan for a family of four, or a sedan for the same family.

That’s the calculation from the actuaries at Milliman, whose annual Milliman Medical Index is the go-to analysis on health care costs for a family of four covered by a preferred provider organization plan (PPO). While the 6.9% annual average cost increase is lower than the 7.3% in 2011, it is nonetheless, a record $1,335 real dollar increase at a rate that’s exactly 3 times the rate of inflation (Consumer Price Index, at 2.3% April 2011-April 2012).

The employee’s share of cost grew 7.2%, greater than last year’s trend of 6.9% year on year. This increase should be kept in the context that workers’ average wages grew about 2.6% in 2011.  Most health economists agree that wage growth has not kept pace with health care cost increases; where wages have gone up, they have largely been eaten up by health costs borne by employees, and then some.

In 2012, the employee contribution will total 42% of the health plan cost, comprising $5,114 contribution to health insurance and $3,470 out-of-pocket costs. This is separate from other health arrangements such as health savings accounts which would add to the employee’s OOP burden.

Milliman’s key takeaways for the 2012 MMI are that:

  • Outpatient health care cost increases grew at under 9%, lower than the past four years. Still, outpatient costs have the highest rate of increase compared to other components of health care. comprising $3,699 in costs.
  • Hospital inpatient care costs per day grew 7.6%. This is the largest cost component coupled with physician care. Hospital costs are $6,531 worth of health spending for a family of four on average.
  • Pharmacy costs grew 7.3%, moderating (relatively) due to growing availability of generic Rx substitutes. However, watch for specialty drug costs to drive spending upward going forward. Pharmacy costs account for $3,056 in spending for a family of four in 2012.
  • Physician costs grew 5% in the year, accounting for $6,647 worth of health spending for the family.
The highest-cost city for health plans is Miami, at nearly $25,000, followed by New York City, Chicago, Boston and Philadelphia. The lowest-cost metros are Phoenix at $18,365, Atlanta at $19,506, and Seattle at $19,734.
Health Populi’s Hot Points: I wrote about the rough equivalency between health plan costs and cars here in Health Populi in May 2011.  Thanks, Milliman, for picking up on my auto price metaphor (you can’t ring the Detroit roots out of this girl).
The point is that health care costs, hitting families at an average annual cost of $8,584, compete with other family budget items like, say, housing, energy, clothing and, yes, cars and gas.
Milliman points out that even with the full implementation of the Patient Protection and Affordable Care Act (PPACA – that is, health reform writ large), the impact on the total cost of care on the family would be negligible. What would positively impact peoples’ personal health care cost curves would be coordination of care, focusing on outcomes, reducing fraud and abuse among providers, and having people make healthier lifestyle choices. This last aspect — getting people more engaged in and aware of their own health — could do more than move the needle on lowering health costs, 80% of which are bound up in chronic conditions such as diabetes and heart disease (conditions amenable to prevention and treatment). This will take artful nudges from health plans that would motivate health consumers to use their plans to their fullest extent, engage in prevention and early diagnosis, and stick with regimens that promote health and wellness.

3 Comments on A health plan or a car: health insurance for a family of four exceeds $20K in 2012

Health cost transparency on the W-2: sticker shock and health financial literacy | Health Populi said : Guest Report 10 years ago

[...] 34% on average for family coverage. The employee premium share can range as high as 40% based on data from the 2012 Milliman Medical Index. Workers viewing the W-2 Box 12 may be experiencing health cost sticker shock now that they can [...]

Jane Sarasohn-Kahn said : administrator Report 10 years ago

Andy, Thanks for your perspective. I've researched consumer-driven health for many years and when it works well, it's a beautiful thing. The challenge, though, is in plan design and educating consumers on how to be literate, rational users of CDHPs. What too often happens is that patients feel sick and need care, but do unhealthful things to preserve their health financial accounts such as postponing going to the doctor when they really need to, skipping filling prescriptions, splitting pills to make the script last longer, and delaying necessary tests recommended by the doctor. Without care coordination and follow up, these consumers end up getting sicker and spending more money than they might have had to to take care of more acute conditions. I am with you wholeheartedly on the issue of transparency so that consumers can indeed make sounder fiscal decisions.

Andy, M.D. said : Guest Report 10 years ago

Wow! Great start to the article, but poor conclusions on the solution. While coordination of care will improve outcomes, it will have a small benefit with respect to cost. Despite headlines, fraud and abuse by providers is not driving cost. Notably, physician income is the only aspect of health care that hasn't increased over the last 25 years. In fact, relative to inflation, physician income has fallen significantly, and continues to fall. The only way to drive costs down is to create a consumer-driven market while reducing regulation. Currently, patients don't know what they are paying for, and often they don't even see the bill. A "family of four" is subsidizing patients who have Medicare, Medicaid, or no insurance. At the same time, Medicare regulations (which are typically adopted by private payors) are driving up administrative costs at a rate that would be inconceivable in any other industry.

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