Medical care costs increase for 'typical' insured family of four

SAN DIEGO-Medical care costs for a family of four has increased 9.6% this year, from $12,214 in 2005 to $13,383 in 2006, according to a recent study.

Medical care costs include hospital, physician and prescription drug coverage that is typically covered by an employer sponsored PPO health plan, according to the second annual Milliman Medical Index. Of the $13,382 total medical cost for a family of four, the employer pays about $8,362 (62%), and the employee pays about $5,020 (38%), $2,810 in payroll deductions and $2,210 in cost sharing.

The annual trends in the last four years are estimated to be 10.1% (2003), 10.1% (2004) and 9.1% (2005). "We measured a slight uptick in 2006, but still the last four years have been basically in the 9% to 10% range," says Robert Cosway, FSA, MAAA, principal and consulting actuary at Milliman. "We don't see the slight increase in 2006 as a sign that trends are increasing. We expect trends in the 9% to 10% range for the next two to three years.

One favorable trend is that prescription drug increases were about 8.3% in 2006, where they had been double digits for the last five years, according to Milliman. "We attribute this to three-and four-tier copay designs encouraging more generic and mail-order use," Cosway says. "Also, more therapeutic classes have good generic alternatives, especially as drugs go off patent. Mail order is growing in acceptance to around 12%."

Cost trends are driven by changes in utilization and unit costs, Cosway says. "While managed care efforts decreased utilization in the 1990s, this appears to have leveled off in recent years, especially for hospital utilization," he says. "New technology ... continue to fuel utilization changes. Unit costs are based on negotiations between health plans and providers. These have run in cycles, but may have reached a short-term equilibrium at current trend levels."