How much are patients paying now?

July 8, 2005

Their out-of-pocket costs are rising, but employers are still shouldering the load.

Patients with employer-sponsored health insurance are digging deeper into their pockets than ever before, especially to pay physicians. But the percentage they pay of their total medical costs is actually decreasing. That's one of the surprising findings in a study released in May by Milliman, the Seattle-based consulting and actuarial firm.

The study tracks the average annual medical cost for a "typical" American family of four covered by an employer-sponsored PPO, now the most popular health plan among US workers. Included in the average are all medical expenses normally covered by the PPO, whether paid by the plan itself or by the employee through deductibles, copays, or other forms of cost-sharing. (Payroll deductions to offset employer premiums aren't taken into account.) This year, the average medical expenses for a family of four will rise to $12,214 from $11,192 in 2004, a 9.1 percent jump. Of this amount, $4,527, or 37 percent, will go toward physician services-the single largest component of annual spending. The cost of inpatient hospital services ($3,704) comes next, followed in descending order by outpatient hospital services ($1,858), prescription drugs ($1,785), and things like ambulance services, durable medical goods, and private duty nursing ($339).

As costs rise, employees are shelling out more of their own dollars to pay for medical expenses. This year, of the $12,214 in medical costs, employees on average will pay $2,035 out of pocket, up from about $1,500 four years ago. Yet employees will bear a smaller proportion of their total medical costs than they have in the past four years, about 17 percent, according to Milliman. The single exception to this trend is in pharmacy, where health plans have instituted mechanisms-like the three-tiered pharmacy benefit-to shift a larger portion of the burden to employees. "It may be easier to come up with such a cost-sharing structure in the area of pharmacy"-presumably because of the relative ease by which plans can categorize different drugs into generic, preferred, and nonpreferred-"than for the other components of spending," says William J. Thompson, a study co-author.

Will such plans actually lower overall costs? Or will they do little more than shift the growing healthcare burden from employer to employee? Or attract mostly younger, healthier families, leaving traditional plans to deal with a riskier, more costly insurance pool? Considering how few companies have embraced the new benefit design, these questions may be fodder for future studies, says Milliman.

If so, we'll be watching to see what they say.