The total cost of health care for the average family of four covered by a typical employer-sponsored health plan will exceed $25,000 this year.
The estimate in the Milliman Medical Index — $25,826 — is the highest since it began tracking annual health care costs in 2001. That year, the projected cost was $8,414.
“Health care costs have increased relative to wage growth,” said Scott Weltz, a principal and consulting actuary at Milliman‘s Brookfield office who co-authored the index. “I think that’s pretty important as it becomes a bigger and bigger piece of a family’s disposable income. I think it’s a sustainability concern.”
Included in the cost projection are average employer subsidies, employee payroll deductions and out-of-pocket expenses.
Consumers on employer-sponsored plans are somewhat insulated from rising costs, which may make the cost projection difficult to believe for those who only visit their doctor for routine checkups and care.
For example, this year the average family will pay around $4,300 in out-of-pocket expenses, but the majority of their health care costs will be paid for by employer subsidies ($14,793) and employee payroll deductions ($6,717), according to the study.
But the average cost to families is still significant.
Between payroll deductions and out-of-pocket expenses, health care will cost the average family more than $11,000 per year. The estimated median income for a four-person household in 2016 is $87,000.
“Even for a family of four earning $100,000, which is more than 400 percent of the federal poverty level in 2016, the average amount they pay for health care services through payroll deduction and out-of-pocket spending at point of care is over 11 percent of their household gross income,” the authors of the Medical Index study wrote. “The situation has only gotten worse over the years as wage growth has stagnated. Ongoing initiatives to slow the increases are critical.”
The study lists health care payment systems, industry inefficiencies and the cost of developing new treatment technologies as three major factors driving up annual costs.
Doctors and hospitals are currently paid through a fee-for-service system in which patients rack up bills for procedures and tests recommended and performed by their doctors, Weltz explained. This system creates an incentive to provide more care than patients really need in order to increase revenue.
“That’s not to say every hospital or doctor performs in that manner, but the way the incentives are set up, it does not necessarily create an incentive to provide care more efficiently,” Weltz said.
One positive — though the cost of care is projected to increase, it will do so at a lower rate than previous years. During the last 10 years, the average annual cost of health care has risen by 6.8 percent, but the cost is expected to increase by 4.8 percent this year.
One explanation could be a shift toward value-based insurance models that are designed around encouraging behavior that keeps patients healthy. Weltz said the causes behind the relatively low cost increase are difficult to nail down.
“It’s a very challenging puzzle to solve,” Weltz said. “We did not dive into the cause. I, frankly, think it varies.”