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Concentration in Health Spending in 2017

By February 28, 2020Commentary

We should force every political candidate to sit and read this one piece of health research and think about the implications.  It is one of the regular Statistical Briefs that the Agency for Healthcare Research & Quality puts out on the concentration of health care spending in the population.  Less frequently the agency puts out a brief on the persistence of a person’s level of health care spending, which is equally important.  Combined the two should be the primary guide to thinking about what kind of health care financing system you really need.   (AHRQ Stat Brief)   In 2017 the top 1% of the population, ranked by spending, accounted for 22% of total health care expenditures, or $377 billion dollars,  and the top 5% accounted for 50% of all spending or $860 billion.  Meanwhile on the opposite end of the spectrum, the bottom 50% of the population represents only 3% of all spending or $50 billion.  The bottom 80% accounts for only 18%.  15% of people had no health spending.  Please, please, like I ask every year, think about that.  Now think about this; overall average per person spending is $5306.  The bottom 50% has average annual spending of $305.  That’s right just $300 year.  Isn’t it obvious that these people don’t need health insurance?  The top 1% on the other hand, average $116,331 per year, ranging from $66,454 and up; and the top 5% average $53,174, with a range of $23,509 to $66,543.  Those people clearly need help.  Note too, that this is the noninstitutionalized population, if people in nursing homes, etc., were included the concentration would be even higher.

The people in the high spending group are obviously older on average, or children with serious illnesses.  Only 5% of people in that bottom half of the population are over age 65.  Caucasians are disproportionately represented among the high-spending group.  This may reflect some effect of insurance, as some minority groups may be more likely to be covered by Medicaid, which pays lower unit prices.  People in the high-spending group tend to have a lot of inpatient hospital expenditures.  For the top 5%, Medicare paid 33.7% of all care and private insurance paid 38.6%.  By contrast, 47% of expenses for those in the bottom half of the rankings were paid for by private insurance.  Now, these numbers need to be considered with a persistence analysis–that is for how long do people remain a high or low spender.  A lot of high spenders in a year die.  And some low spenders in a year might then have a serious accident or disease that causes their spending to spike up.  But past analyses have shown a fair amount of persistence.   That is important for designing and targeting care management and cost control programs.  When I look at these numbers, it is pretty obvious to me that a better system would stop requiring that people purchase insurance, in fact discourage it and instead rely on mandatory health savings accounts, with people purchasing routine services on a fee-for-service basis and having an incentive to shop carefully, since they are spending their dollars.  If and when a non-Medicare person incurs a serious illness or condition requiring much higher spending, they could be kicked over to a government program, even to Medicare, and that episode paid for on an episode basis.  If and when they recover, they would go back to the fee-for-service world.  I think that system would cost a lot less and would have a lot less government interference, which honestly is never good, than something like Medicare-for-All.

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