In 2015, the cost of healthcare for a typical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan is $24,671 (see Figure 1) according to the Milliman Medical Index (MMI).1 The amount will almost certainly surpass $25,000 in 2016.
Key findings
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Growth rate up in 2015 due to prescription drug prices. Last year’s 5.4% growth rate was the lowest in the history of the MMI and stands out compared with 10 years ago when the three-year-average annual growth rate was approximately 10%. This year, the growth rate has again climbed, increasing to 6.3% in 2015 (see Figure 2), largely due to increases in prescription drug costs. Even at last year’s low-water mark of 5.4%, the annual rate of increase is still well above growth in the consumer price index (CPI) for medical services.2
- Costs for our typical family have more than doubled over the past decade. The cost for this family has nearly tripled since Milliman began tracking this information in 2001.
- Cadillac tax approaching? Perhaps. A family of four with the MMI plan is likely to reach the Cadillac tax much sooner if the plan is provided by a smaller employer and if trends exceed recent levels.
- Pharmaceutical costs spike in 2015. Prescription drug costs spiked significantly, growing by 13.6% from 2014 to 2015. Growth over the previous five years averaged 6.8%. The 2015 spike resulted from the introduction of new specialty drugs as well as price increases in both brand and generic name drugs, increases in use of compound medicines, and other causes. Since the MMI’s inception in 2001, prescription drugs have increased by 9.4% on average, exceeding the 7.7% average trend for all other services. Prescription drug costs now comprise 15.9% of total healthcare spending for our family of four, up from 13.2% in 2001. In a special section of this report, we examine prescription drug trends in greater detail.
- Employees continue to shoulder an increasing percentage of healthcare expenses. The total employee cost (payroll deductions plus out-of-pocket expenses) increased by approximately 43% from 2010 to 2015, while employer costs increased by 32%. Of the $24,671 in total healthcare costs for this typical family, $10,473 is paid by the family, $6,408 through payroll deductions, and $4,065 in out-of-pocket expenses incurred at point of care.
Looking forward, when and how future annual rates of increase will continue to change is unclear and may depend on a number of factors. One factor is the Patient Protection and Affordable Care Act (ACA) as it has both direct and indirect influences on the costs for our family of four. This year’s MMI takes a deeper dive into how some of these factors may drive future healthcare trends.
Additional resources
1 The Milliman Medical Index is an actuarial analysis of the projected total cost of healthcare for a hypothetical family of four covered by an employer-sponsored preferred provider organization (PPO) plan. Unlike many other healthcare cost reports, the MMI measures the total cost of healthcare benefits, not just the employer’s share of the costs, and not just premiums. The MMI only includes healthcare costs. It does not include health plan administrative expenses or profit loads.
2 Over the 10-year period ending March 2015, medical CPI has increased by approximately 3.3% per year, while the MMI has increased by 7.3% per year.