This Week's Herman Trend Alert

HR in Normal 2.0

  The Herman Trend Alert

May 30, 2007

Healthcare Costs Out of Control

While the cost of living in the United States rose by a mere 3.3 percent, healthcare costs for an average US family of four increased by 8.4 percent from 2006 to 2007. The good news is, as we forecast last year, the increase has slowed a bit, though most would agree, not enough. (Herman Trend Alert from 6/28/06) This reduction is a welcome slowing from the 9.3 percent average annual rate of increase between 2003 and 2007.

According to the third annual Milliman Medical Index (MMI), the average healthcare cost for a typical family of four in the United is now $14,500 for the year 2007. This amount represents an increase of $1,118 over the preceding year. The MMI, released for the third year in a row, tracks the changes in average yearly healthcare costs for a family of four covered by an employer-sponsored Preferred Provider Organization (PPO). It is based on analysis of historical claim data and understanding of trends in provider contracting. Milliman is one of the leading global consulting and actuarial firms.

In 2007, based on a typical PPO plan design, the member cost out of their own pocket at the time of service for the typical American family of four would be $2,420, an average increase of $210 over last year.

"The cost of healthcare varies significantly by metropolitan area," said study co-author Lorraine Mayne, a principal with Milliman. "This could have implications for any national healthcare reform proposals that utilize a standard nationwide tax deduction," she continues.

The number, type, and cost of healthcare services that the family utilizes, along with the amounts that the employee’s health plan pays medical providers for these services, determine their medical costs. Utilization of medical services for a particular family varies significantly based on the family members’ ages, geographic area, health status and other factors.

These increases are not confined to the US. They are global. In Scotland, Switzerland, and even South America, we have seen significant escalations in healthcare costs.

As the Baby Boomers age, we expect greater rises in healthcare costs and more stress on employers worldwide and their bottom lines.

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