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Concentration of Health Spending

By October 7, 2015Commentary

The annual report on the concentration of health spending in the United States population put out by the Agency for Healthcare Research and Quality is always an opportunity to remind ourselves of a few salient facts.  This year’s version is based on 2013 data for community dwelling persons (so this leaves our nursing home residents, prisoners and others in institutions).  (AHRQ Brief)  As in past years, spending is very concentrated, with little change in the trend.  A few basics; lets divide the population in half.  One half accounts for 97.1% of all health spending; the other half for 2.9%.  Think that lower half really needs rich benefit insurance?  (I know, I know, people move between halves, but not as much as you may think, that is the subject of another brief.)  How are the top 1% doing?  Not so well, they represent 21.5% of total health spending, with an annual mean expenditure of $95,200.  Certainly a subgroup worth focusing care management efforts on, assuming they remain in that 1% over multiple years (again a topic for another brief).  The top 5% incurred 48.7% of all spending, an average of $43,253; the top 10% represents 64.9% of spending, a mean of $28,808.  So the potential return for managing care drops pretty quickly.  Across the entire population, an average of $4,436 of health spending was incurred for the year.

Looking at some other subgroups exposes interesting patterns.  The top 5% of people under 65 without insurance, for example, account for 67.5% of that subgroup’s spending, but the annual mean of this subgroup is only $17,902, not a large sum.  Do people have low spending because they lack insurance or do people with low spending avoid insurance because it simply doesn’t make financial sense for them.  When even the most expensive portion of this subgroup incurs such a low amount of average spending, it suggest the latter rather than the former.

The percent of spending for the top 5% within an age cohort declines with age and the average amount spent generally rises, indicating that more people within the entire cohort have a fair amount of health spending.  For children under 18, the top 5% account for 56.1 % of spending by that subgroup, an average of $22,632.  For adults aged 18-44, the respective figures are top 5% at 52.6% of the total and mean of $29,014; for adults 45 to 64, top 5% are 45.6% and $54,033; and for adults over age 65, top 5% are 32.6% and $63,320.  The top 5% of African-Americans and of Hispanics account for more spending than does a similar group of Caucasians or Asians.  Males had a higher concentration of spending than did females.  Spending is less concentrated in the high income subgroup and tends to be similar across all other income groups, including the poor.

Trying to reduce spending?  You have to follow the money and see where the effort required to cut utilization or unit costs may provide a return.  Wonder about what is a fair public policy regarding health insurance?  Look at the average costs, the distribution of those costs and their persistence (again, the subject of another brief, likely to be released soon by AHRQ).

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