Hospital costs drive overall 4.1% increase in health care costs

Health care costs rose 4.1% from 2019 to 2020, although the COVID-19 pandemic could create many uncertainties, according to the Milliman Medical Index, released this month.

The MMI, which measures annual health care costs for individuals and families with employer-sponsored preferred provider plans, found that the average American in 2020 paid $6,553, and a hypothetical family of four, $28,653.

“There’s been a lot more pressure to keep costs under control,” said Chris Girod, principal and consulting actuary at Milliman, and a co-author of the report. “Health insurance companies and plan sponsors are doing lots of things to help control unnecessary utilization or removing wasteful services from the system.”

Related: Higher health care prices correlate to lower utilization of care

The cost increase is moderate when compared to rates a decade ago but still outpaces growth in the gross domestic product, according to the report. The MMI looks at five health care costs paid for by employees and employers: inpatient and outpatient care, pharmacy, physician services and other services. Hospital costs, which rose 15% in the past three years, have increased faster than other expenses.

The report did not calculate costs tied to COVID-19, whose impact depends on the length of the pandemic, how much people defer health care and how many employees lose their employer-sponsored coverage.

“Nobody knows for sure, obviously, because there’s a lot of this year left, and a lot of uncertainty,” Girod said. “But some of the more recent predictions Milliman has done suggest the savings, or cost reductions, from deferred care, will tremendously outweigh any cost increases due to COVID testing and treatment. The costs for this year in total will probably be lower than they otherwise would be without COVID.”

For the first time, the report estimated that better management and operations in the health care system could reduce costs by 25%, lowering a family’s annual cost to $21,490.

“This has been highlighted, or the focus of attention for some people, particularly as we’ve run into the COVID crisis and hospital constraints,” Girod said. “Some of those capacity constraints could be mitigated if we operated at greater levels of efficiency.”

Read more: 

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