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Health care costs continue to increase for PPO plans

The employer's share for covering a family of four exceeds $10,000 for the first time. Payroll contributions and out-of-pocket costs for employees rose around 8%.

By Pamela Lewis Dolan — Posted June 3, 2010

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Medical spending for an American family of four covered by an employer-sponsored PPO plan rose, in cash terms, faster than ever, according to a survey. However, by percentage, those costs are going up at a consistent rate, with physician services becoming less of a contributing factor.

These were among the findings of the 2010 Milliman Medical Index, an annual report published by the market research firm Milliman.

The report found that for the third year in a row, the annual rate of health care cost increase has been 8% or less. However, the dollar increase of $1,303 (difference between 2010 cost of $18,074 and 2009 cost of $16,771) was the highest since Milliman started publishing the index 10 years ago. That total included $10,774 in employer-contributed payments -- the first time in the survey's history that the employer share passed $10,000.

Meanwhile, the annual rate of increase for physician costs declined from 6% to 5%.

While physician services account for the highest chunk of medical spending, 33%, the rate of cost increases in that area was slower than all other cost components, including inpatient care, outpatient care and pharmacy.

"Physician reimbursement rates have just historically trended at a lower rate than, for example, hospital costs," said Chris Girod, co-author of the study.

Hospital outpatient care saw the highest increase in the past year, from 10% to 12%, due to an increase in average unit cost, which is the negotiated charge for each service.

Girod said hospitals, in a lot of markets, have a lot more control over cost levels than physicians do. "The bottom line is that hospitals tend to get compensated more on the basis of what they bill, and physicians are paid according to more fixed schedules."

The report, released in May, is available online (link).

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