The Affordability Gap

The alarming chart on the left, provided by Prudential Insurance, shows active employee data from Towers Watson Health Care Cost Survey 2010 and  seasonally adjusted data from the Bureau of Labor Statistics’ Current Employment Statistics Survey from August to August, 2000 – 2009.

Providers Driving Healthcare Costs

Why have healthcare costs risen so precipitously? In posts such as “Health Care Costs Gone Wild“, and “Are Greedy Health Insurers Gauging the Public?“I showed that the drivers of health care costs are the upstream providers, with  insurance company profits adding only 3 cents per health care dollar, and 14 cents due to insurance services, vs. 86 cents for providers.

The 2012 Milliman Medical Index report featured on Life Health Pro confirms the market clout of providers to increase costs/ This year, hospitals and outpatient facilities are better at bargaining for higher rates from employer-sponsored health plans than physicians.

Milliman Medical Cost Study
Increases in the cost of care components between 2011 and 2012
Inpatient 7.6%
Outpatient 8.6%
Physician 5.0%
Pharmacy 7.3%
TOTAL 6.9%
Source: Milliman Inc., Seattle

Analysts using Milliman care cost guidelines data to estimate the average  health care costs for a typical U.S. family of four receiving health care through an employer-sponsored preferred provider organization (PPO) plan have shown:

  • The average cost has increased 6.9% since 2011, to $20,728.
  • The average rate of increase is down from 7.3% between 2010 and 2011.

The analysts found that costs continue to rise more rapidly for some types of care than for others:

  • Hospital costs are up 7.6%.
  • Outpatient care costs are up 8.6%.
  • Physician costs are up 5%.

Although physician costs increased more slowly than facility costs, physician costs have increased a little more rapidly this year than in 2011, and facility costs have been rising a little more slowly this year than last year.

The Milliman benchmark plan is comparable in actuarial value to a Patient Protection and Affordable Care Act of 2010 gold plan (the  PPACA establishes 4 plan categories — platinum, gold, silver and bronze.) The PPACA to date has had only a limited effect on total health care costs for the Milliman Medical Index family of four, and if PPACA takes effect as written, some provisions could increase employer plan costs while others could decrease employer plan costs, according to the analysts.

Snap principle of the rising consumer health care costs:

Insurers are at the forefront of containing consumer costs, but the upstream providers need sweeping reforms.