Concentration in Health Spending

By November 21, 2016Commentary

This is another in a series of notes on the recent issuance of several Agency for Healthcare Research & Quality statistical briefs on national health spending.  Today’s focuses on the brief which discusses concentration in health spending in 2014, overall and by categories such as age and source of insurance.   (AHRQ Brief)   Spending is very, very concentrated.  The top 1% of the population ranked by spending accounts for 22.8% of all spending with an annual average expense of $107, 208.  The top 5% represents over half, 50.4%, of spending or an average of $47,498.  The bottom 50% of people is only 2.8% of the total, with average annual spending of a measly $264.  All these numbers have been relatively consistent for years, so this is not a flukey event, this is how spending has been, is and is likely to be distributed.  The policy implications are obvious; should jump off the page to anyone who looks at this.  We are approaching the issue of insurance coverage from the wrong perspective.  Most people aren’t going to need insurance.  Lack of predictability is the main impediment, but most low spenders stay low spenders for a prolonged period.  Truly catastrophic coverage is all they need.  And at the other end of the range, the high spenders need very intensive management.  If we reduced the top 5%’s spending by 20%, we would be saving almost 10% of all spending.

As you would expect, spending rises with age.  People aged 18 to 44 are 35.5% of the population and have 20.3% of spending.  Those aged 45 to 64 are 26.3% of the population and 35.95 of spending; while the 65 and over category is only 15% of the population but represents 33.6% of spending.  The average annual expenses for the top 5% of spenders in this oldest cohort is $68,819; while it is $62,472 for the 45-64 year-olds and only $28,275 among 18-44 year-olds.  The concentration is lowest in the oldest cohort, as expected, since more old people have at least some spending and more have significant illnesses.  Uninsured adults account for a low percent of spending, being 14.4% of the population and 5.7% of spending.  People with public insurance on the other hand, are 14.3% of the population but represent 23.7% of spending.  For adults with private insurance, the top 5% of spenders averaged $41,907 annually, while the bottom 50% averaged only $315.  So employers also obviously should be permitted to offer or provide only catastrophic coverage for most employees and should concentrate management efforts on the top 5%.  Again, predictability is the issue.  One caveat to the report is this is non-institutionalized persons; for those who are in nursing homes or otherwise considered institutionalized, expenses are typically very high and that is a population deserving of very tight management.

Author Kevin Roche

The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry through Roche Consulting, LLC. Mr. Roche is available to assist health care companies through consulting arrangements and may be reached at khroche@healthy-skeptic.com.

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