Concentration in Health Spending by Patient, Payer and Service Category

By March 4, 2019 Commentary

It is a well-known fact that health spending is highly concentrated; that a small number of people account for the great bulk of spending.  The Agency for Healthcare Research & Quality reminds us of that in a new Statistical Brief, based on 2016 data.   (AHRQ Stat. Brief)   If we are going to address our concern about the level and growth rate of national health spending, we need to know where the money is going and why.  The Bureau of Economic Analysis and others have done a lot of interesting work trying to pin it down by disease.  The concentration curve found in Figure 1 of the Brief is amazingly skewed to the right.  The top 1% of the population, ranked by annual spending, accounts for 22% of all spending.  The top 5% represented half of spending.  Meanwhile, on the other hand, 15% of people had no spending and the bottom 50% accounted for only 2.8% of health care expenditures.  In raw numbers, the average per person spend was $5006.  But for the bottom 50% it was $276.  For the top 5% it was $50,077 and for the top 1%, $110,003.  I keep beating this dead horse, but why are we worried about making sure everyone has insurance.  We are wasting an incredible amount of administrative and other expense for absolutely no good reason.  Having a government sponsored catastrophic coverage for the rare instance when someone actually incurs a serious health episode, coupled with some type of medical savings account, would be a far less costly and more economically sensible arrangement.

High spenders were older on average, with 43% being over age 65.  Inpatient services were more prevalent among high spenders as well, representing 40% of the spending for those ranked in the top 5%.  Dental costs were almost a third of all spending for the bottom 50% of spenders.  Drug spending was relatively even across all spending cohorts, at around 20% of the total.  In the bottom 50% of the population, private insurance paid for 46.5% of expenses, out-of-pocket was 26% and Medicare only 3.6%.  In the top 5%, however, Medicare paid 36% and private insurance 37%, while out-of-pocket accounted for only 5.5%.  I have not seen for a couple of years the companion brief to this one, which examines the persistence of health spending.  That is as important as the concentration.  Effective management is much easier if it is the same people who are high-cost year after year, but as you can imagine, that is often not the case.  Many high-spenders die, some had an acute event like a serious car accident.  So I am eager for that work to appear soon.

 

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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