I really enjoy policy related research. This study touches one of my favorite questions–why is health care so expensive in the US and where does all that money go? The answer to the first question is pretty clear–our unit costs for health care in the US are way higher than in other countries. We pay doctors a lot more, we pay much more for our drugs, our hospitalizations cost far more–largely because we pay hospital executives outrageous compensation, and so on. Our utilization control is actually very good.
The answer to the second question is also pretty interesting and there have been a series of reports over the years on the concentration of health spending on individuals and the persistence of that concentration, in other words if someone is a high spender in one year, does that high spending tend to persist or is their a substantial substitution in high-cost individuals? This study shows once more that a very few people in this country account for a huge percent of all health spending. I strongly encourage you to read this in full, it is one of the critical background data items that will help you think about health system policy. (JAMA Study)
The study period covers 2001 to 2018, and during that time on an annual basis between 4.2% and 4.8% of the population accounted for 50% of all spending. That is remarkable concentration. At the other end, 20% of the population had no spending. In 2018 in that high spending group, the average cost of their health care was $61,328. If you saw the numbers for the top 1% of the population that would likely be close to $200,000. The bottom 50% of the population spends a remarkably low about 5% to 10% of total health care spending, averaging only a few hundred dollars a year. The concentration of total spending has been stable but one category where it has become more concentrated is drugs, with only 2% of the population accounting for 50% of drug spending. This is associated with the increase in use of very expensive specialty drugs.
When you read these numbers, you will understand why I question the structure of financing of health care in the US. Why does everyone need insurance? For most people, the premiums are far higher than their actual health care costs. They system would be far more efficient and have much lower total cost if the government provided coverage for people whose expenses were over a certain amount and everyone else paid out of pocket, with the government putting a cap on charges. The management and payment for people with known expensive conditions or episodes of care should be put out to bid to qualified providers, instead of allowing this sort of dual oligopoly we have of payers and providers in most markets; an oligopoly which has no interest in lowering prices.
The persistence of spending level is important to how much effort is it worth to manage someone’s health and health care. Unless someone has a high level of spending over several years, the cost of the management effort gets no return in reduced health spending. This study doesn’t specifically address that issue, but others have, and people with serious chronic illnesses like Alzheimers and congestive heart failure tend to be high spenders for several years but also have high rates of death. Other causes of high spending are more short-term, a serious cancer episode, a major car accident, for example.