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CCH® BENEFITS — 5/30/07

Family Medical Costs Average $14,500 In 2007, With Employees Paying 38%

from Spencer’s Benefits Reports: A typical American family of four enrolled in a preferred provider organization is paying $14,500 in total medical expenses in 2007, an 8.4% increase from 2006, according to the most recent Milliman Medical Index (MMI).

Although this increase is lower than the 9.3% average rate from 2003 to 2007, the portion of the health benefit premium paid through employee contributions rose 12.2% in 2007, an increase that will significantly reduce some employees’ pay increases, Milliman observed. The 2007 MMI is the third annual report that Milliman has released. The MMI uses Milliman’s own health care cost research data and data from other sources, such as the Kaiser Family Foundation/Health Research and Educational Trust Annual Employer Health Benefit Survey, to produce the report.

The average total medical costs varied among the seven metropolitan areas reviewed, with New York City metropolitan area insureds experiencing the highest costs ($16,542, 14% higher than the national average), followed by the Chicago area ($15,411). The Seattle area had the lowest cost at $13,206. The MMI also reviewed costs for Washington, D.C.; Dallas; Los Angeles; and Atlanta.

Inpatient services were 30% of total medical cost increases, and outpatient hospital services were 16% of the total increase between 2006 and 2007. Physician services represented 36% of the total increase, prescription drugs 14%, and other miscellaneous services were 4% of the total.

Rate Of Increases

Costs for inpatient hospital and miscellaneous services rose at the highest rate, while costs for physician services continued to experience the lowest increase. Trend rates for pharmacy costs dropped in 2007 for the second consecutive year to 7.7%, attributed to the move from brand-name to generic drugs, but costs are projected to rise with the growing use of more expensive specialty.drugs (biologics and injectables). Insureds pay a larger share of pharmacy costs (24.5%) than they do overall (16.7%).

The Milliman report examined the total cost of health care, including how the costs are distributed between employers and employees. and among health care’s major components. Of total medical costs, on average, the employer paid 62% of the cost ($8,909) and the employee paid 38% ($5,591), with the employee share comprising $3,171 from payroll deductions and $2,420 in cost sharing (copayments, coinsurance, and deductibles). Employees’ average out-of-pocket cost sharing in 2007 rose at a slightly higher pace than overall costs. However, “the trend in employee contributions lags behind the broader medical costs trend by 12 to 18 months,” as employers determine employee contributions months before the beginning of the new plan year, and cost increases continue, the MMI report notes.

The MMI also reported variations in plan designs and funding intended by plan sponsors and insurers to meet participants’ needs for “low-cost, high-value” plans. One of the primary trends is employers’ growing interest in consumer-driven health plans (CDHPs), although CDHP growth has not been as great as projected. Other plan design trends that the MMI observed were higher copayments for office visits to specialists (25% of all plans), a deductible and coinsurance structure instead of copayments for prescription drugs (used by 20% of plans), and wellness benefits such as blood pressure and cholesterol screenings, and smoking cessation classes (17% of plans each).

For more information, visit http://www.milliman.com.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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