Health costs inflated 9.6% this year

BenefitNews Connect • July 6, 2006

The average medical expenses for a family of four increased by 9.6% from $12,214 in 2005 to $13,382 in 2006, according to the consultancy Milliman. The average annual rate of increase between 2002 and 2006 was 9.7%. Bob Cosway, a consulting actuary at Milliman, predicts the rates will stay in the 9% to 10% range for the next several years. Milliman's figures, based on medical claims, include the cost of physician visits (36% of total costs), inpatient hospital care (30%), outpatient hospital care (16%) and pharmaceuticals (14%). The steepest inflation was found in outpatient and inpatient care this year.

The upward trend in pharmacy costs slowed considerably. "There have been more and more drugs going off patent, and more therapeutic classes have good generic drugs available," Cosway notes. "We think many of those market forces will continue for pharmacy." Technology, new drugs and managed care policies have allowed more medical problems to be handled with outpatient services and medications, rather than the more expensive inpatient care, he observes.

Companies are bearing higher inflation rates than their employees, even as they increase amounts employees pay in premium contributions, deductibles, copays and coinsurance. The inflation for the employer's share was 11.3% in 2005 and 2006, while employee's share saw a 6.8% increase this year, compared to 5.8% last year. The average family of four paid $2,210 out-of-pocket for medical care this year with coverage from a typical PPO.