2020 Milliman Medical Index, with a new twist

May 22, 2020

Topics: Quote of the Day

By Chris Girod, Paul Houchens, Dave Liner, Andrew Naugle, Doug Norris, Scott Weltz
Milliman Research Report, May 2020

Executive summary

In 2020, the cost of healthcare for a hypothetical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan is $28,653, according to the Milliman Medical Index (MMI).

Key findings of the 2020 MMI include:

Cost increases have continued to be mostly “moderate.” For an average person, healthcare cost grew by approximately 4.1% from 2019 to 2020. That rate is roughly consistent with rates over the past five years, and is definitely moderate relative to rates from 10 years ago, which were twice as high. Nevertheless, the cost increases continue to outpace gross domestic product (GDP) growth, which is roughly half the rate of healthcare cost growth. Recently, hospital costs have taken center stage, growing more quickly than costs for other services, climbing approximately 15% over the past three years, versus 10% for all other services combined.

COVID-19 will have big impacts on healthcare costs in 2020. That much is certain. However, the impacts will manifest as some very big cost increases (for direct COVID-19 care), and some very big cost decreases (for deferred and forgone services). On average, the net outcome is still highly uncertain. We know, for example, that COVID-19 testing and treatment costs are new in 2020. However, these amounts may be dwarfed by the spending reductions resulting from deferrals of care. At this time, there is tremendous uncertainty around the net effect on costs. Therefore, in this year’s MMI report we have not made explicit adjustments to our 2020 cost projections to reflect COVID-19 impacts.

For the first time, this year’s report looks at the effects of managed care on costs. Since its first edition in 2005, the MMI has focused on “what is”—namely, what employer-sponsored healthcare costs are on average nationwide. Very little time has been spent discussing “what could be”—what could healthcare costs be under an ideal system? Milliman’s research indicates that effective use of managed care principles could reduce overall healthcare costs for the MMI family by approximately 25%, which would lower the family’s annual costs from $28,653 to $21,490.

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Comment:

By Don McCanne, M.D.

Just a reminder of what the Milliman Medical Index (MMI) is: It is the cost of health care for a hypothetical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan. For 2020 that cost is $28,653 per family.

Of great significance, the MMI continues to increase at twice the rate of the growth in our gross domestic product (GDP). Thus excessive health care cost growth has not been contained by the provisions of the Affordable Care Act, nor by the various other tools such as the Medicare Shared Savings Program (MSSP) and the alternative payment models (APMs) designed to replace volume with value, such as accountable care organizations (ACO), and merit-based incentive payment system (MIPS). Particularly disappointing have been the consumer-directed approaches of increasing deductibles and other cost sharing since not only have they failed to control costs but they have also created unnecessary financial hardship for far too many individuals and families who have greater health care requirements.

New in this year’s MMI report: Milliman estimates that managed care principles could be used to reduce health care costs by 25% – from annual family costs of $28,653 down to annual costs of $21,490. But other than stating the need for providers to have “skin in the game” though MSSP and APMs and other managed care, which have already been shown to be ineffective, they offer no objective support for arriving at a 25% savings. Managed care has already been proven to be a failed experiment.

It’s too bad that they avoided the topic of single payer Medicare for All. Although that model would not reduce total spending by 25%, it would greatly improve allocation of our health care funds such that health care would be accessible and affordable for all of us forever. Milliman should at least be interested in the fact that the single payer model bends the cost curve so that we would finally bring under control the most important finding in the MMI reports, and that is the excessive health care cost escalation that we could bring down to sustainable levels through enactment and implementation of single payer financing.

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