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Concentration of Health Care Spending

By October 11, 2013Commentary

Every time one looks at an analysis one can’t help but be astounded by how much health spending is accounted for by a very small percent of the American population.  But equally impressive is how little spending a huge percent of the population incurs.  The latest Statistical Brief from the Agency for Healthcare Research and Quality reminds us of these very useful and basic facts.   (AHRQ Stat. Brief)   Based on 2010 data, the top 1% of the population in health spending accounts for 21.4% of total spending, with an average expense of $87,570 and the top 5% for half of all spending with an annual average of $40,876.  If you split the population in half, the top spending half accounts for 97% of spending and the bottom half less than 3%.  The Medicare-eligible population has a less dramatic spread and higher average spending.  Among the uninsured, the top 5% accounts for over two-thirds of all spending by this group, with an average annual expense of $17,453.  That means the other 95% of the uninsured account for only one-third of the spending in this cohort, and their average annual spending must be less than a $1000.   So why is it so important to make sure that the uninsured have insurance?  (And don’t tell me that they aren’t getting needed health care because they don’t have insurance–the research does not support that notion.)

For employers, the two sub-groups of interest are the 18-44 and 45-64 cohorts.  For those groups, the top 5% of spenders account for 50.5% and 45% of total spending, respectively, with annual means of $24,871 and $51,881.  This would indicate that focus on these small sub-groups could yield rewards if the spending is amenable to reduction.  It is likely that these 5% sub-groups have multiple chronic conditions, but it would be helpful to know exactly what diseases or conditions are driving spending in these groups.  For intensive care management to pay off, the annual spending may have to be more in that $50,000 range than the $25,000 one.  Most importantly, lets look at that huge part of the population–half–that basically has no health spending.  Why is it fair to make those people subsidize others with high expenditures?  It is not, and the unfairness is exacerbated by the fact that many of the individuals who have high expenses engaged in poor health behaviors that led to their high health expenses, meaning that they intentionally are making others pay for their reckless behavior.  Making individuals bear the consequences of their behavior is the best way to create incentives to change that behavior.

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