Guy Boulton

The Milwaukee Journal Sentinel

MILWAUKEE — The average total cost of health care for the typical family of four will top $25,000 this year.

That projection — from the annual Milliman Medical Index — includes the average cost of health insurance paid by employers and employees, as well as deductibles and out-of-pocket expenses for the most common type of health plan.

The total cost — $25,826 this year — may prompt disbelief. But few people realize what their employer spends to provide health benefits or the potential cost of deductibles and other out-of-pocket expenses if someone in a family has a serious illness or even a series of relatively minor mishaps.

"A lot of people are sheltered from the true cost of health care, despite the fact that they are paying more than in the past," said Scott Weltz, a principal and consulting actuary who works out of Milliman's office in Brookfield, Wis.

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They are paying much more: The Milliman Medical Index has more than tripled since its first year in 2001.

The index is no more than a gauge, and actual costs vary. Most people, for instance, are fortunate enough not to have high out-of-pocket costs in a given year.

But it makes clear the total cost of health care spending for the typical family.

"It is shocking — it's heart-stopping," said Paul Hughes-Cromwick, co-director of the Center for Sustainable Health Spending at Altarum Institute, a non-profit research and consulting organization in Ann Arbor, Mich.

That's especially true when compared with the median U.S. income of $83,414 for a family of four in 2014.

The Milliman Medical Index tracks only people who get health insurance through an employer. Total health care spending is even higher, largely because it includes people over 65, who have higher health care expenses.

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With those costs included, the United States spent an average of $9,523 per person on health care in 2014, according to the federal Centers for Medicare and Medicaid Services. That works out to an average of $38,092 for a family of four — and spending was projected to increase 4.9% a year through 2024.

The largest share of health care costs is borne in the form of lower wages and taxes.

An employee's total compensation includes what his or her employer spends on health insurance — and that accounts for an increasing share of total compensation.

One of the reasons that workers have seen smaller raises for more than a decade is the increase in the cost of health benefits.

The Milliman Medical Index estimates that employers will spend an average of $14,793 this year to provide health benefits for a family of four. Few people, though, are aware of the magnitude of their employer's contribution.

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"That makes it hard for people to get their heads around the total costs," said Sue Hart, a principal and consulting actuary in Milliman's office in Houston.

At the same time, employees are bearing a larger share of total costs through higher deductibles, co-insurance and other out-of-pocket costs.

The Milliman Medical Index estimated that a family of four will incur an average of $4,316 in out-of-pocket expenses this year, on top of paying $6,717 for their share of the insurance premium.

The good news is the 4.7% increase in the index this year is the lowest since 2001 — and the increase would have been much lower were it not for a sharp increase in the prices of prescription drugs, particularly specialty drugs that can cost tens of thousands of dollars a year.

Prescription drugs now account for almost 17% of total health care spending.

"They are becoming a bigger and bigger piece of health care costs," Hart said.

The index doesn't include rebates from pharmaceutical companies, Milliman acknowledged, and may overstate the total cost for this reason.

The increase in prescription drug prices shows one of the challenges in controlling health care costs: New costs have a way of emerging.

But the smaller annual increases in the index suggest that the U.S. health care system is becoming more efficient.

"That should be the headline," said Hughes-Cromwick of the Altarum Institute. "The underlying trend has been incredibly positive."

Total health care spending also has grown at a much slower rate in recent years.

That said, the rate of growth has yet to fall below the growth in the economy or inflation or wages.

"So, really, sustainability still is a concern," Weltz said.

Follow Guy Boulton on Twitter: @BoultonGuy