Milliman Report on Medical Spending Highlights Role of Unit Cost Increases

AHIP HI-WIRE
May 20, 2010

Milliman recently issued its 2010 Milliman Medical Index (PDF) (MMI), examining the total annual medical spending for a typical American family of four covered by an employer-sponsored PPO program.

According to the Milliman report, the total medical cost for a typical American family of four is $18,074 in 2010, representing a 7.8 percent increase over last year's total. The report states: "Most of the hospital and physician cost increases identified in this year's MMI have been driven by average unit cost, not utilization, which frames the coming effort to control costs. Provider/payor negotiations will be more visible and intense in the reform environment and as regulators put more pressure on the premium rate-setting process."

Other key findings include:

• The 2009 to 2010 hospital inpatient annual rate of increase grew from 7.7 percent to 9.8 percent, and the hospital outpatient annual rate of increase grew from 10.2 percent to 11.6 percent. These increases are driven largely by higher average unit costs.

• Approximately 17 percent of this year's increase in pharmacy spending is attributed to increased utilization, and the remaining 83 percent is due to average unit cost increases.

• The components of medical spending in 2010 for a typical family of four are: $6,062 for physician care; $5,586 for inpatient hospital care; $3,094 for outpatient hospital care; $2,635 for pharmaceuticals; and $697 for other services.

• Of the $18,074 total medical cost for a typical family of four in 2010, the employer pays about $10,744 (59 percent) toward the premium, while the employee pays $4,325 (24 percent) toward the premium and $3,005 (17 percent) in out-of-pocket costs.