The annual Milliman Medical Index (MMI) contains some grim tidings for health insurers and others concerned by the rising cost of health care, as for the fourth straight year, costs rose by at least 7%.

The MMI found that for 2011 the average cost of health care for a family of four covered by a preferred provider plan now stands at $19,393, up from $18,074 in 2010. The 2011 tally reflects the steady rise charted in health costs over the last decade. By way of comparison, the MMI for 2002 was $9,235.

The study delves deeply into the causes behind this cost inflation. For example, the study notes that even though hospital spending is only 48% of total health care spending, increases in facility spending accounted for 60% of this year’s total increase in costs.

For the third year in a row, spending at outpatient facilities rose faster than any other component of patient care, climbing 10%. Milliman attributes the growth in cost to the fact that existing outpatient services have increased in price while new, more expensive services continue to emerge.

Pharmacy costs were another source of cost inflation, rising 8%. Although a quarter of that increase came from broader usage of pharmaceuticals, most of the change came from higher average prices.

These rising costs present a challenge for insurers, which are facing more political pressure to keep premiums down. Indeed, the report calls health care reform “the elephant in the room” and predicts that insurers will become subject to greater scrutiny of their rates.

“Premium rate reviews do nothing to directly influence the underlying drivers of health care cost, but can put pressure on insurers to find ways to keep medical costs down,” the report states.

Bill Kenealy writes for Insurance Networking News, a SourceMedia publication.

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