More on Health Spending Concentration

By January 3, 2018Commentary

A couple more papers related to concentration and persistence of health spending have recently been published.  One is the latest Agency for Healthcare Research & Quality Statistical Brief on the subject, based on 2015 MEPS data, and the second is a think-tank paper on policy decisions related to concentration and persistence.    (AEI Paper)  (AHRQ Stat. Brief)   Every time I look at the AHRQ Brief, I am dumbfounded by the implications.  15% of the population has no, that is right, zero, health care spending for the year.  The lower half, in spending, of our non-institutionalized population, only accounts for 2.8% of all health spending, an average of $278, or about $27 a month.  The top 5%, on the other hand, account for over half of the spending, at an average of $50,572, while the top 1% represent 22.5%, an average of $112,395.  Our insurance-based health system is insane.  Now you see why I suggest moving to a system that does not use health insurance, but instead creates health savings accounts for everyone, that belong to them and can be used when they need health services.  And the people with persistent high expenses that exceed savings should be bid out to health care entities that want to be responsible for their care and will manage it on an at-risk basis, with the government paying.  One-time high spenders should similarly have their high-cost episodes bid out.  Eliminate the insurers and you would save at least 10% of costs immediately.  Other facts from the brief; obviously the elderly are more represented among the high-spending individuals.  The most common conditions among the top 5% were hypertension, 54%, joint arthritis and disorders, 45% and high cholesterol, 42%.

The second research piece addresses persistence as well as concentration and comes from the American Enterprise Institute.  Persistence of health spending level is in many ways more important than concentration.  If we knew who the high spenders were going to be in advance, managing their care and reducing costs would be a snap.  But we don’t know this with certainty and the persistence of high-spending from year-to-year is not huge, for example according to one study of the top 5% in 2012, only 34% were in the top five in 2013.  So being in the high-spending cohort in one year has some predictive power, but not a lot.  Acute exacerbations of chronic diseases, trauma and high cost diseases like cancer tend to be short-term phenomenon.  But generally we know where to look to believe we will find the top spenders in a year.  This second paper suggests concentration has actually reduced somewhat in recent decades but the effect is modest and only exists at the very top level.  There has been almost no change for example, in the percent of  spending represented by the bottom half.  The primary contribution of this paper is to question whether our insurance-based system is the best way to handle health needs, particularly the idea of forcing those who likely will need little health care to pay so much for those who will, particularly when much spending is driven by conditions that are sensitive to individual health behaviors.  Why should those who don’t need health care have to pay for those who eat badly, don’t exercise, smoke, drink, don’t wear motorcycle helmets, etc.  I see no fairness in that concept; I see only the encouragement of poor behavior and avoidance of individual responsibility and its consequences.

Kevin Roche

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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