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The Concentration in Health Spending

By June 17, 2021Commentary

I have to say, I am really enjoying getting back to my health policy and research writing, and re-discovering so many research pieces that I (nerd-alert) really take pleasure in absorbing.  Today I am going to cover a new version of one of my favorite studies.  But first, the Federal Reserve doesn’t actually think inflation is temporary.  The market was trying to believe it when the Fed said it, and ten-year interest rates actually crept down in the face of horrific inflation numbers.  But at its meeting today, the Fed made it clear that it doesn’t actually think inflation will simply recede in a few months, and rates shot up.  The Federal Reserve shouldn’t be manipulating interest rates in any event, but there is real, omnipresent, lasting inflation and interest rates are going up, a lot, with or without the Fed.  And I suspect the Fed is signaling Congress and the Senility Administration that they won’t facilitate endless reckless spending that also causes inflation and contributes to interest rate rises.

And one CV-19 note.  Dr. Osterholm has sworn off predicting, saying it is just too hard to figure out transmission dynamics.  That is modest and humble of him.  Andy Slavitt on the other hand, is determined to continue to win the title of “most wrong pundit”.  This genius, who literally hasn’t been right about anything, is determined to sensationalize to get attention and hopefully some coveted government post, and is now saying we will see all kinds of cases of the Delta, or Indian variant, especially in the South where vaccination is lower.  He claims this variant is CV-19 on steroids.  That is false, but he actually doesn’t know its false because he never reads any research or looks at any actual data.  He keeps doomsaying, hoping just once he will be right, like the proverbial stopped watch that is still right twice a day.  Andy is a cuckoo clock that is never accurate.  The Axis of Evil is down to one member, who just can’t let go of his moment of (in)fame(y).

Now on to the concentration of health care spending.  If health spending were evenly distributed among all citizens, it would be difficult to figure out a focussed way to reduce or control that spending.  If it is concentrated among a few people or a few diseases, you have a more tangible target.  In addition to identifying where health spending is concentrated, it is useful to follow people over several years–is it the same people who are high cost year after year, or is there substantial turnover.  Another brief in this series addresses that question.

The Agency for Healthcare Research & Quality collects and issues statistical briefs on important health utilization and spending issues (now it is being detoured off into useless disparity and equity research).  This brief is issued every year or two to update health spending concentration analyses.  This version uses 2018 data, not sure why the lag is so long.  (AHRQ Statistical Brief)   The concentration of spending data is astounding.  The top 1% of people in health costs account for 21% of all health spending.  The top 5% represents almost half of all spending.  The bottom 50% account for only 3% of the total spent on health care in this country.  13% of the population had no health care spending in that year. Think about that for a minute, when you think about how to design a health care system.  Why would you insist that people have health insurance.  The majority of people in the country don’t need health insurance, they just need catastrophic coverage in case something quite unforeseen happens.

The average annual spending on the people in the top 1% is $127,284.  For the top 5% it is $58,609.  For the bottom 50% it is $384 and the most expensive person in that bottom 50% spends $1317 per year.  Now think about what health insurance costs.  The high-cost people disproportionately have serious chronic diseases, some of which, like rheumatoid arthritis, are treated with very expensive drugs.  They are also heavily weighted toward the elderly.  Inpatient hospital spending is featured in the costs for the top-spending subset of people.

Now here is another set of implications to think about.  Remember that study on whether workplace wellness programs paid off that I posted on last week.  Now you see why they don’t.  Most people simply don’t have that much health spending.  So if you are thinking about the return on investment for a wellness or disease management program, there are only a few people who are expensive enough to justify what it costs to carefully manage someone’s health and health care.  And do you really think that a few behavioral changes would dramatically change this distribution of spending.  The really high cost people have serious dementia, have serious and long-lasting cancer, have end-stage renal disease or heart failure; have a serious car or other accident that results in long-term hospitalization or a few other categories of disease that typically require lots of hospitalizations or use of very high cost drugs.

As I said, this is a fascinating analysis and one that really helps to clarify thinking about the health system and how it should be structured.

Join the discussion 6 Comments

  • Steve says:

    Came for the covid updates; staying for THIS! Thanks Kevin, fascinating stuff! I’m getting a real education in health care economics.

  • Christopher B says:

    I like to call what’s usually termed ’employer-paid health insurance’ as ‘pre-paid medical care’ because that’s how people use it.

  • DirtyJobsGuy says:

    I’m old enough that I was alive (albeit just a couple of years old) when Eisenhower had one of his heart attacks. The leader of the free world and architect of D-day with the best medical care the US could supply, got the advice that Mamie should get in bed with him to keep him warm. Not much different than my grandfathers care. Only a few years later Christian Barnard did the first heart transplant in South Africa. The pace of medical advances got even more rapid. Today we provide pretty much every US citizen who needs it some astounding treatments with equally astounding costs. A freer more competitive market with realistic regulatory and approval rules will help bring more cost effective services and help level costs. I think we will always have some very high cost procedures that are new and specialized so a financing plan that accounts for this will be required.

  • rob says:

    Those numbers are very similar to the breakdown of who pays taxes in this country. The top tiny percentage, the filthiest of the filthy rich, pay almost all of it while the bottom 50% pay almost nothing.

    I’m not seeing an obvious solution to health care expenses though. Unless we’re talking about DEATH PANELS oh my! Seriously though, it sounds insane to be spending a fortune on dementia and various end-stage patients.

  • Rob says:

    I don’t find it fascinating, I find it bloody obvious. The insurance actuaries have known this for decades. Any occasional fluctuations are due to demographics more than anything else.

  • J. Thomas says:

    Gov says it budgets $1.5 Trillion for Healthcare. Let’s assume 90% of that is for the population over 65, which makes up roughly 52 million folks (2019). If you apply the data above, the top 5% accounts for $152B, the bottom 50% – $10B … that leaves roughly $1.19 Trillion for the remaining 45% in the ‘upper middle’, or 23.4 Million folks. This means that each of them consume over $80,000 which is much greater than the top 5% at $58,609 …. so this doesn’t add up.

    If you then pick a sensible annual $20K spend for the 45% in the ‘upper middle’, then they spend $486B. Therefore the total spend is $648B or 43% of the $1.5 Trillion healthcare budget. Something still smells wrong with either the published gov healthcare budget or the AHRQ’s spending analysis.

    I think people that study this country’s federal spending and try to make sense of it (as my 3rd grade math shows) get very frustrated that we’re paying through the nose for our healthcare when, relatively speaking, it’s not that expensive to provide basic care and catastrophic insurance to all of us thought our current levels of taxation. Yes, that’s a socialist’s approach. But hell, we’ve socialized it for those under 25 and those over 65 …. let’s just finish the job and get corporations out of the middle !

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