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Thursday
May182017

Investing in an Index Fund tied to the Milliman Medical Index instead of the Dow Jones Industrial Average

By Clive Riddle, May 18, 2017

Milliman has just released their 2017 Milliman Medical Index, which measures the cost of healthcare for a typical American family of four receiving employer PPO coverage. The total family bill is $26,944 compared to $4,518 in 2001. I want to invest in an index fund tied the Milliman Medical Index. The annual rate of return since 2001 would be 11.805%, compared to 3.874% for the Dow Jones Industrial Average during that same time (Dow Jones May 16 2001: 11,215.92; Dow Jones May 16 2017: 20,606.93). Our Milliman Medical Index fund would outperform the Dow index fund by three times.

But since the Milliman index fund only exists in some alternate universe for now, we might as well dive into some of findings Milliman shares in their 12-page report on this year’s index: 


Pharmacy share of costs have increased during this this time (from 13% to 17%) as have Outpatient (from 14% to 19%) while Professional services decreased (from 40% to 30%) and Inpatient remained about the same (from 30% to 31%).

Here verbatim are Milliman’s three key findings:

1. The MMI’s annual rate of increase is 4.3%. This is the lowest rate since we began tracking the MMI in 2001. Yet the total dollar amount is still bracingly high. Of the $26,944 spent by the MMI’s family of four, $11,685 is paid by the employee, through a combination of $7,151 in payroll deductions for premium, and $4,534 in out-of-pocket costs incurred at time of care.

 

2. Prescription drug trends are lower, but still high. For the first time since 2013 and 2014, the family of four’s prescription drug trends have decreased in two consecutive years. Still, the 2017 prescription drug cost increase of 8% is more than double the medical increase of 3.6%.

 

3. Employees pay a bigger piece of the healthcare cost pie. Through their payroll deductions and through out-of-pocket expenses incurred when care is received, employees now pay for about 43% of expenses and employers pay the other 57%. The difference between these two shares has gradually narrowed since 2001, when employees contributed 39% and employers contributed 61%. High growth in per-employee healthcare expenditures have pushed employers to limit their contribution increases to amounts below the rate of healthcare inflation.


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