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Milliman "Medical Index" looks inside health care costs Posted: June 9th, 2010

By Meredith Ledford

Each year, Milliman, a consulting group, releases the Milliman "Medical Index" providing information on the cost of medical care and how those costs change over time, including changes in health insurance costs for employers and employees. The May 2010 report saw increases for families and hospital costs, while pharmacy costs decreased.

Here are some of the key findings from the Milliman Medical Index:


  • For a typical family of four, medical costs increased by $1,303 to reach $18,074 in 2010, representing a 7.8 percent increase since 2009. This is the largest dollar increase the U.S. has experienced in the past 10 years.
  • Costs for hospital care, especially inpatient care, experienced the highest dollar increase of $498 annually.
  • The cost of physician services decreased by one percentage point and prescription drugs decreased to 15 percent of total annual medical costs.


Who pays for these rising costs?

So, who is bearing the brunt of these cost increases? You and your employer. According to the report, employers total costs increased 8 percent and employees total costs increased 7.4 percent from 2009 to 2010. The costs for employers and employees are largely driven by increases in the underlying cost of care. At $10,744 the average employer's share of the cost for a typical family of four now surpasses $10,000 for the first time.

Where you live can determine how much you pay for health care

Additionally, depending on where you live, your medical costs may be more expensive. The Milliman Medical Index reviews geographic variation in 14 metropolitan areas. The areas with lower health care costs generally seemed to be in the West and across some parts of the South. Five cities in particular, exemplify this:


  • In 2010, Miami, New York City and Chicago continue to have costs at least 10 percent higher than the national average. All three cities now exceed $20,000 for a family of four, with Miami topping out at $22,089.
  • Phoenix and Seattle continue to experience costs much lower than the national average, with costs around $14,000 to $15,000.


This variation, from region-to-region and from city-to-city, result from an array of factors, including costs per service, patient demand and the variation in physician treatment plans and patterns.

Do we overuse the health care system?

Some have argued that the rise in health care costs is due to overuse and increased use of unnecessary health care services. While this may be the case in some instances, the Milliman report found that hospital and physician cost increases were driven by average unit costs. Additionally, although pharmaceutical costs increased by 6.1 percent from 2009 to 2010, it is less than the overall cost trend for the year, which was 7.8 percent. Case in point, only about 17 percent of this year's increase in pharmacy spending is due to increased utilization, whereas 83 percent of the increase is due to average unit cost increases.

As the nuts and bolts of health reform are implemented, you may see a major focus on cost controls. It's no wonder, considering the information found in the Milliman Medical Index. Negotiations between providers and insurance companies regarding the cost of services may intensify as regulators put more pressure on the health insurance industry to put ceilings on the cost of health insurance premiums.

Meredith Ledford