Medical Costs to Rise Nearly 8% this Year: Study

Medical costs for a typical American family of four are expected to exceed $15,000 this year, according to a study by Milliman Research. In its fourth annual Milliman Medical Index, the company looks at key components of actual medical spending and tracks the changes over time.

The MMI estimates that the total 2008 cost for a typical American family of four covered by an employer sponsored insurance preferred provider plan will increase 7.6 percent to $15,609.  And employees can expect to pay most, or possibly all, of the rate increase.

Of the $15,609 total medical costs, MMI estimates the employee will pay 40 percent or $6,167. More than half of that, or $3,492, will be paid through payroll deductions. The remaining $2,675 will be paid at the time of service through co-pays and deductibles, the report said.

“Previously, when trends were high, employers would absorb the majority of the cost increases to mitigate the effect on employees,” according to the report. “But as trends have moderated in recent years, our data shows employers are allowing the full trend increase, plus some of the past shortfall, to be passed on to employees.”

There are some bright spots, according to the MMI. The 2008 rate increase of 7.6 percent was down for the second straight year and the lowest in the past five years. In 2003, medical costs increased at a rate of 10 percent while costs last year grew at a rate of 8.4 percent.

Medical cost savings in 2008, however, may have been offset for many families by increases elsewhere, like prescription-drug cost, which was up for the first time since 2006, MMI said.

Consumer demand always plays a factor in medical cost increases.  MMI said other drivers of the cost rise include increases in the wages and cost of materials, improved technology, new drugs and economic incentives for health care providers. Demographics, regulations and benefit mandates, and cost shifting to insured patients are other factors, the report said.

Seattle-based Milliman is a 60-year-old management consultant providing expertise on employee benefits, health care, insurance, and financial services.