Healthcare costs are on the rise again

Using health insurance claims, the MMI estimates healthcare costs for both individuals and families who receive coverage from employer-sponsored preferred provider organization (PPO) plans. According to Milliman, the index reflects the following:

• Nationwide average provider fee levels that are negotiated by insurance companies and preferred provider networks
• Average PPO benefits offered under employer-sponsored health plans
• Average utilization levels for people covered by large employer group health plans in the United States

Although healthcare costs decreased in 2020 due to the pandemic, they have been increasing in the years since. Since 2021, there has been an annual 4.8% increase in healthcare costs. Between 2022 and 2023, Milliman predicts that costs will grow by 5.6%.

For individuals, annual healthcare costs have increased from $6,472 in 2021 to $7,221 in 2023.

For a family of four, annual healthcare costs have increased from $28,310 in 2021 to $31,065 in 2023.

According to the MMI, healthcare costs can be divided into five service categories: inpatient care, outpatient care, professional services, pharmacy, and other services. For the average person on a PPO plan, roughly half of healthcare expenses will come from hospital services, both inpatient (17%) and outpatient (29%). Professional services also make up a large portion of costs at 30%.

Spending for each of these categories has also increased over the last few years. For 2023, the MMI projects hospital costs (inpatient and outpatient) will increase by 4.2%, professional services by 9%, pharmacy costs by 5.6%, and other services by 9%.

For individuals with employer-sponsored health plans, organizations are expected to cover around 60% of employees' overall healthcare costs. In 2023, employer costs are expected to rise by 7.2% while employee costs will increase by 4.4%.

For the average person, employers are expected to cover $4,241 of annual healthcare costs while employees contribute $1,847 and pay $1,133 out-of-pocket.

What's driving this increase in healthcare costs?

Although high inflation is contributing to growing costs, other macroeconomic factors, including supply chain issues, labor shortages, and a strong labor market, are also all impacting healthcare costs.

"Healthcare cost inflation tends to trail general inflation by six to 12 months," said Doug Norris, co-author of the MMI. "While there have been some encouraging numbers on the general inflation front recently, we have a while before healthcare cost inflation catches up."

The authors also noted that new healthcare price transparency laws may help decrease costs for both individuals and families. Because hospitals and payers are now required to publish their negotiated reimbursement rates, employers can potentially use this data to drive costs down.

"The price transparency data, when married with in-depth analytics and amplified with other data assets, has the potential to transform the way employers design provider networks and plans to yield better outcomes and lower costs," the authors wrote. "Although stakeholder use of this data is still in its infancy and we expect it will take some time before payers and providers figure out how to best leverage it for price negotiations, insight into competitive pricing information has the make a significant impact on overall healthcare cost trends." (Lagasse, Healthcare Finance, 5/30; Bell et al., Milliman, 5/25)

Amid the Great Resignation, roughly two-thirds of employers are looking to enhance their health benefits in an effort to improve employee recruitment and retention, according to a survey from  Mercer. Read on to learn about four key health and benefit strategies for 2023.