Most employers expect their health care costs will increase as a result of federal legislative reforms. And while deciding whether to pass along at least a portion of that increase to employees, they will have to evaluate how much more employees can bear.

The gravity of those decisions is underscored by new data showing that 2010 average medical spending for the “typical American family of four” will reach $18,074, an increase of $1,303 or 7.8%, from 2009.

This total-dollar increase is the highest in the 10-year history of the study conducted by Milliman Inc. Individual employees’ total costs registered a 7.4%, increase, including both out-of-pocket cost sharing at time of service and payroll contributions for medical coverage.

Obviously, employees were not the only ones bearing the burden of skyrocketing health care costs this year; employers also experienced an increase of 8%. The average employer’s share of the cost nationwide for the typical family of four now surpasses $10,000 for the first time at $10,744, finds the Milliman Medical Index (MMI).

Health care reform promises to add costs for the employer, at least in the short term, Milliman analysts observe, by expanding dependent coverage for adult children up to age 26, removing lifetime and annual limits, restricting cost sharing for preventive care, and prohibiting preexisting condition exclusions for children’s coverage.

But employers’ ability to pass along those costs may encounter practical limits. The only silver lining might be that, now, benefit managers will at least know the new rules of the game.

“Most employers held off making significant changes while they awaited detail on health care reform,” says MMI co-author Ron Cornwell, Milliman principal and consulting actuary. “Most of the decisions that determine 2010 plan costs were made in an environment of great uncertainty as employers awaited the conclusion of the reform debate. Many of this year’s cost drivers, including the share of employer and employee cost increases, reflect historical trends.”

“The economic environment, and particularly the high rate of unemployment, also has implications for health care costs,” says MMI co-author Chris Girod, Milliman principal and consulting actuary. “When employees are laid off, there are also cost ramifications for the remaining employees.”

Whatever the cause, employers will need to get creative in their efforts to lower costs for themselves as well as their employees. How employers confront escalating costs will vary by population and location. As MMI determined, utilization of medical services for a particular family varies dramatically based on the family’s ages, geographic area, health status, and other factors.

The study determined the difference between the least-expensive and most-expensive cities to be 37%. Among the 14 metropolitan areas Milliman annually studies, three cities—Miami, New York, and Chicago—now exceed the $20,000 per-family mark. Phoenix is the least-expensive city in the study with a per-family cost of $16, 071.

The complete Milliman Medical Index is available at www.milliman.com.

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