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The Concentration of Health Care Spending

By August 8, 2012Commentary

What is the best way to address issues regarding the high, and growing, health care spending in the United States?  One obvious way is to drive and identify on which patients all this money is being spent, and see if it might be possible to manage those patients’ care in a more-effective manner.   A report from the National Institute of Health Care Management reviews the facts on the concentration of health care spending.    (NIHCM Brief)   Looking at data on the whole population and on Medicare for 2009, about 1% of the entire population accounted for 20% of all health care spending, or over $90,000 per person, and 5% accounted for almost half of all spending.  On the other hand, 15% of the population had no spending and the lowest-spending half of people, only totaled 3% of spending or $236 per person.   In Medicare, as expected given the age of the population, there is a little more spread, but the top 1% still are responsible for 14% of Medicare spending and the top 5% for 38%.  Interestingly, spending has actually become less concentrated in the last 20 years; the top 5% accounted for 56% of spending in 1987.

As we would expect, the high spenders tend to be older and obviously have more chronic conditions.  The persistency of a patient in a particular spending group is a very important statistic; it determines the extent to which predicting high-cost patients is possible and whether intensive management provides a return on investment.  About 20% of the top 1% of spenders in one-year are in the same group the next year; about 45% of the top 10% of spenders are in that group the next year.  Again, older, sicker patients tend to be more persistent.  Among Medicare beneficiaries many of the highest spending patients die in the next year or so.  It appears that there are two broad buckets of patients with high costs; one group is relatively persistent year after year, occasionally having spikes caused by acute episodes.  Another is patients who are generally healthy but have an acute event–cancer, an accident–that causes high costs for a short time.  Not much likely can be done about the second group, but the first needs two approaches.  One is to insist through penalties and incentives that people change behaviors which cause chronic illness, and the second is to manage the care of these persons aggressively.  A final observation is the gross unfairness of an insurance system which makes the vast proportion of the population which is healthy and incurs few expenses, pay for the behavior of a few who haven’t and won’t take care of their health.

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