Here’s What’s Happening to Healthcare Costs for Typical Family

The cost of healthcare for a typical American family of four will rise about 6.3 percent this year, or $1,456, driven in great measure by higher prescription drug prices.

The latest study by the consulting and actuarial firm Milliman Inc. says the total bill for healthcare costs for this family will be about $24,671, of which the employer will pay $14,198 and the employee will pay $10,473.

The Milliman Medical Index (MMI) is based on a typical American family of four receiving coverage from an employer-sponsored preferred provider plan (PPO).

“Healthcare costs for this family have doubled in the past decade, and tripled since we began tracking this information in 2001,” said Sue Hart, co-author of the MMI. “As has been the case throughout the time we have studied costs for this family, the rate of increases far outpace the consumer price index.”

The CPI increased 0.2 percent in March on a seasonally adjusted basis, according to the U.S. Bureau of Labor Statistics.

Employees and employers have shared the burden of this cost increase, but for the fifth consecutive year, employees have assumed an increasing percentage of the total cost of care, according to the report.

The MMI measures the total cost of health care services used by the family of four, including out-of-pocket expenses paid at time of service, and it separates the costs into portions paid by employer versus employee.

The total employee cost (payroll deductions plus out-of-pocket expenses) increased by approximately 43 percent from 2010 to 2015, while employer costs increased by 32 percent. Of the $10,473 in total healthcare costs paid by this typical family in 2015, $6,408 was paid through payroll deductions while $4,065 in out-of-pocket expenses incurred at point of care.

Of this year’s total $1,456 increase, $467 is due to prescription drugs, a 13.6 percent increase after a five-year period in which prescription drug costs averaged annual increases of 6.8 percent, Milliman said.

This year’s 6.3 percent cost increase follows last year’s all-time low of 5.4 percent. The MMI of 6.3 percent for this year is what it was in 2012, which is below the 7.3 percent reported in 2010 and the 6.9 percent in 2011.

Most of the components of care analyzed by the MMI (physician, outpatient, inpatient, other) experienced trends in line with recent years, but the sharp increase in prescription drug costs heightened the overall rate of increase.

“The rate at which prescription drug costs increased this year doubled over the average increase of the prior five years,” said Scott Weltz, co-author of the MMI. “This was driven by a combination of factors, including the introduction of new specialty drugs, a continued increase in compound drugs, and price increases for both brand name and generic drugs.”

The study assesses the direct and indirect effects of the Affordable Care Act (ACA), also known as Obamacare, on costs. Until now, the ACA has been seen as having only indirect effects on the employer-sponsored health insurance market since this market was not the focus of reforms as much as the individual and small group markets.

But the employer- sponsored market may start feeling more effects due to the so-called excise (Cadillac) tax on high-cost coverage that is to start in 2018, according to the actuaries at Milliman.

The report notes that some employers with high-cost plans have already begun to scale back their offerings in anticipation of the Cadillac.

“Those employer plans affected might initially be limited to outliers with extremely rich benefit plans,” the report says. However, the report says “it is simply a matter of time before other plans like the one tracked by the MMI are caught by the excise tax.”

Once the threshold is exceeded, the amount of tax will grow every year because healthcare expense trends will likely exceed the CPI index used to adjust the threshold to years beyond 2018, according to the authors.

Chris Girod, co-author of the MMI, said there is the prospect that the plan purchased by the typical family of four —which in terms of actuarial value is in a “gold” plan—may trigger the “Cadillac tax” that goes into effect on high-cost health plans in 2018. Whether this typical family of four will actually be affected by the Cadillac tax will depend on if future trends exceed recent levels, he said.