Health Insurance Costs Continue to Rise

Blame Prescription Drug Prices

Health Insurance Costs Continue to Rise
September 10, 2015

The actuarial service firm Milliman recently released the 2015 Milliman Medical Index (MMI), an index that tracks the hypothetical costs of a family of four with health insurance coverage through an average employer-sponsored preferred provider organization (PPO). Initiated in 2001, this index is unique in that it measures the collective costs of healthcare benefits instead of focusing on just an employer's share or the premiums.

To no great surprise, the MMI index rose in 2015. The MMI reached $24,671 for 2015, compared to $23,215 in 2014 and $22,030 in 2013. The 5.4% cost increase in 2014 was the smallest in the history of the MMI, but 2015 represents a larger percentage increase (6.3%). Since the initial reading in 2001, the MMI index has shown an almost tripling of costs.

This year, prescription drug costs are leading the charge. Pharmaceutical costs grew by 13.6% over the previous year, considerably higher than the 6.8% average growth over the last five years. Thanks to this increase, 15.9% of the total healthcare spending for the hypothetical family of four is now taken up by prescription drug costs.

While all costs are increasing, the employee's portion of the cost is increasing at a higher rate. Defined as the total of payroll deduction and out-of-pocket costs, over the last five years, the employee's cost burden has increased by almost 43% compared to 32% for employer's costs. For 2015, employer contributions covered 58% of the costs ($14,198) while employee costs of $10,473 were split between $6,408 in employee contributions (26% of the total) and $4,065 in out-of-pocket costs (16% of the total).

Broken down into the components of spending, the largest components are inpatient facility care and professional services (physicians and other support personnel). Both take up 31% of the cost. Outpatient care takes up 19% of the costs, pharmacy charges are 16% of the costs, and the remaining 9% covers miscellaneous costs — things such as medical equipment, home health care, and ambulance transport.

While prescription drug costs account for most of the increase, professional services costs rose by only 3.6% — the lowest rate in the history of the MMI. Physicians bear little of the load for the 2015 increases.

Why have drug costs spiked? According to the Milliman report, the combination of expensive new specialty drugs and a price increase for both brand name and generic drugs contributed to "the perfect pharmaceutical storm." Adding to this perfect storm is the rise of the use of compounded drugs (along with a rise in their price) and the "patent cliff" of expiring patent protection for well-known drugs like Lipitor and Nexium. While the shift to generic is an initial improvement for consumers, once generic alternatives are established, the more popular drugs raise the generic price component.

The reforms of the Affordable Care Act (ACA) do not affect the MMI much, since the MMI is focused on employer-based group health plans and the ACA is aimed at individuals and smaller employers. However, Milliman suggests that continuing trends will eventually trigger the "Cadillac tax" (an excise tax on higher-cost, higher-benefit plans) for the MMI average family. Milliman estimates that smaller employers may cross the excise tax line as early as 2018.

Indirect costs from the ACA may also affect the MMI family, as lower income from the individual market may shift costs toward the employer market to make up the difference.

The bottom line of the Milliman report: health insurance costs are going up yet again. Future MMI reports are likely to reach the same conclusion. The only real question is how much the costs will rise, and whether the cost increases are broad or concentrated in one particular area.


Photo ©iStock.com/dina2001

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Elaine | 09.10.15 @ 14:10
Don't even get me started on the ACA. It is a mess.
Sara | 09.10.15 @ 14:20
I wont even start on how I feel about the ACA. However, I will say that the military medical we have always had, its always been hit or miss on how good it can be, but now we are getting letters saying costs will go up even more.
Steffanie | 09.10.15 @ 14:27
Not a fan of ACA....
Steven | 09.10.15 @ 14:28
Not a fan of ACA at all. I feel that it is not the solution.
Carla Truett | 09.10.15 @ 14:31
We have had the same insurance for over 10 years and are now paying more for it. My prescriptions costs are through the roof now. So really not happy with this ACA at all!
Britt | 09.10.15 @ 14:37
This doesn't even surprise me honestly. This is one of the many reasons why I was so against ObamaCare. I knew the prices would only go up.
Kyle | 09.10.15 @ 14:40
I have never really been a huge fan of ACA, so it doesn't surprise me at all
Morgan | 09.10.15 @ 14:42
Not surprising at all. ACA is horrible.
Daniel Dohlstrom | 09.10.15 @ 14:44
Maybe one day a real solution will be found what we have now is not it
trish | 09.10.15 @ 14:54
My heart hurts how we have become a country where no one can afford to be sick.
Bobbie | 09.10.15 @ 15:07
Amazing how high our plan has gone up since ACA was forced on us. Glad that my family is healthy overall and no one takes any RX.
Beverly | 09.10.15 @ 15:09
And here I thought health insurance was going to be more affordable thanks to the ACA, at least that is what we were told. Maybe if the President, Congress and ALL public service employees were forced to be on it things would change. Right now the ACA is nothing but a big joke. The numbers of those worse off are higher than those that are better because of it.
Nancy | 09.10.15 @ 15:14
I don't have room to list all of the corrupt industries in this country, but medical is one of the biggest. Their lobbyists are some of the strongest in DC and it is reflective in these numbers.
Erin | 09.10.15 @ 15:20
The profit these companies are making on the drugs has to be outrageous. I understand some of that goes into R&D, but they have to be making a pretty penny as well.
Christina | 09.10.15 @ 15:43
Such a corrupt industry. The profit margin for prescriptions is ridiculous - and the patents expiring should lower costs rather than encourage them to price newer drugs sky high
Sarah | 09.10.15 @ 15:44
I know first hand that they're going up. Before the ACA, we had great coverage, but once it went into effect our cost went to over $700 per month!! There's no way we can afford that...
Ambar | 09.10.15 @ 16:03
It's incredible how people take advantage of others people's misery
Katie Greene | 09.10.15 @ 16:08
I really wish we would take after some of the best run countries. They have health care paid for all citizens, are not getting taken advantage of by companies who see things like cancer as a way to cash in big bucks (instead of treatments proven to work that are cheap) have a good living wage and have low crime rates. We are the complete opposite in the land of the free.
Kamie | 09.10.15 @ 16:12
This is all just crazy, honestly would be cheaper in the long run to just do ER visits with no insurance.
Alec | 09.10.15 @ 16:15
Sadly, my family can not afford health insurance and we've been denied Medicaid due to my state being one of the hardest to get medicaid in. Because of the cost rising, people I know who were able to afford health insurance a couple years ago have had to get rid of a lot of other bills or luxuries to afford health insurance they don't even use. My family will be fined again come tax time for not being able to afford $300 a month health insurance.
Zanna | 09.10.15 @ 16:17
I can fix their higher costs. Have drug companies stop advertising and let doctors decide which medicines ought to be given, rather than having patients who "know" what drug they need come in and request it.
Owen | 09.10.15 @ 16:17
The costs keep going up and the care and coverage gets worse.
Jonathan | 09.10.15 @ 16:22
In my opinion, drug companies hold people victim, they come out with a drug, make it to be the best thing since sliced bread, get it pushed thru FDA and then it ends up being worse. Honestly as much as I like to admit it without ACA I honestly couldn't afford healthcare.
Chelsey | 09.10.15 @ 16:24
Eh....ACA is a disaster. I can appreciate what it was trying to do, but it failed so miserably.
Jackie | 09.10.15 @ 16:38
I see nothing affordable about the ACA. It will end up bankrupting the government.
gracie | 09.10.15 @ 16:49
So far it's not a solution that has in any way benefited me. It has not kept costs down or made them anything other than higher.
Irene | 09.10.15 @ 17:04
Our insurance has always gone up while what it covers has always gone down, and that was long before the ACA
Selena Walls | 09.10.15 @ 17:04
ACA is terrible.
Heather | 09.10.15 @ 17:11
The rise of healthcare costs is ridiculous and the insurance is paying less
Meredith L | 09.10.15 @ 17:12
I'm just sickened by the rise of medical costs and prescription drugs because no one knows exactly what they do and where all the money is going...but they say it goes into research & development. Big Corp & Big Pharma don't want us cured of anything because then they'll be out of business and that's all they care about - their bottom line. Listen, if the doctors didn't have to pay extraordinary-bordering-ludicrous money for liability insurance because the lawyers took over our healthcare, then we might not be in this mess. Just my opinion.
Kathryn | 09.10.15 @ 17:17
They make it mandatory to have it.. Yet hardly anyone can afford it. How does this make any sense?
Angie | 09.10.15 @ 17:23
I have to be nice on here, and because I have nothing nice to say, this is all I will leave.
$commenter.renderDisplayableName() | 12.11.16 @ 10:23
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