Family Medical Costs to Increase 9.6%

Milliman’s study found the average annual medical cost for a family of four will increase by 9.6% from 2005 to 2006. For the period 2002-2006, the annualized rate of increase was 9.7%.

The rate of increase varies for each component of medical costs. The MMI showed a hospital inpatient cost increase of 9.3%, while the hospital outpatient cost increase is 12.6%. The physician increase is 5.9%, and the pharmacy increase is 8.3%.

In each of the years from 2003-2005 the pharmacy trend was 11%-13%, according to the study report. Milliman attributes the decline in the pharmacy trend to the increased use of generic and mail order drugs and generic versions of name-brand drugs becoming available.

As medical costs have increased, employers have increasingly turned to cost sharing with employees. However, while employees have paid an increasing dollar amount of costs year after year, the percent of increase of their share is not rising, the MMI shows.

The increase of employees’ share of costs from 2005 to 2006 is 6.8%, compared to a 13.2% increase from 2002 to 2003. Of the four components of medical costs, employee costs have increased the most for pharmacy benefits.

Milliman also noted in its report, while consumer-driven health plans (CDHP’s) have increased in popularity with employers as another cost sharing tool, only about 3% of the 177 million Americans with private health insurance coverage participate in a CDHP.

The MMI report is here .