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A Health Care Post!! How Exciting!!

By October 5, 2021Commentary

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.

Join the discussion 8 Comments

  • dirtyjobsguy says:

    There is a substantial cost step for “tracking” diagnostics such as colonoscopies, MRIs etc. In addition the basic diagnostics for many people such as imaging, more expensive functional tests etc. fall into this type. I’m a firm believer in everyone pays something even if only a little to lend confidence in the process. A classic major medical policy with extensions to our modern age of testing backed up by government reinsurance seems to be ideal. But this requires elimination of the secret insurer graft schemes with hospital groups. There has to be clear and honest pricing and open access.

  • rob says:

    According to my slightly nutty girlfriend, this is why “They” invented Covid… to eliminate the individuals who eat up healthcare costs.

    • Kevin Roche says:

      don’t think they invented it, or for that reason, but one undiscussed effect of the epidemic, when the dust finally settles, will have to been to lower costs because a lot of frail elderly have died.

  • J. Thomas says:

    Costs will never be lower because of EXCESS old people dying, which is arguably a negligent amount if you’re honest about the ‘with vs. from’ data. They are being replace by illegals at a 3:1 ratio who are all on the tax payer’s backs and will need medical services for decades, not years.

    Anyone who thinks that weaving government deeper into the medical system as a solution to cost control has a demented view of the world. But, maybe you think that Biden is doing a great job too?

    How do you patent something that was developed in the virology lab and NC Chapple Hill and say that it wasn’t ‘invented’ … please explain. Are you really saying that this came from a wet-market?

  • guest says:

    Are you able to think of any examples (here or in other countries) where healthcare expense systems approach the ideal you are envisioning?

    Maybe the way the Amish do healthcare is an approximation?
    I find their approach, as described in this article, fascinating.

    “How The Amish Live Uninsured But Stay Healthy”

    • Kevin Roche says:

      I think our system is so screwed up and convoluted at this point that switching to something else would be a nightmare. And I think all countries are struggling with expense, especially as populations age. I do strongly believe that returning to a system that is self-pay for the vast majority of the population would save money. Let people have spending accounts, which many people have now, that roll-over, and give them some leverage with providers.

  • Mike M. says:

    “on an annual basis between 4.2% and 4.8% of the population accounted for 50% of all spending. That is remarkable concentration.”

    Is that really so remarkable? That implies that the average person spends 3-4 years as one of the high cost group. Actually more than that to the extent that the population skews young.

  • guest says:

    The article below came out a day ago and articulates a perspective of US healthcare’s problems, including but not limited to healthcare costs, medical education, hospitals, “wokism” in medicine, government agencies, big pharma, insurance companies, execs, and mandates. Much of it struck a chord with me, anyways.

    Corporate Medicine: The Rot at the Core of the US Medical Establishment Exposed

    A few highlights:
    “The COVID-19 pandemic has laid bare the depths of mismanagement, incompetence, greed, and utter stupidity that pervades the American medical establishment – what I call Corporate Medicine…

    Just as other industries in the US are controlled by oligarchs connected to the federal government, so too is healthcare. Just as a revolving door swings between the SEC and big banks, and between the Pentagon and defense contractors, so too exists a revolving door between the NIH, FDA, CDC, and the oligopoly of hospital, insurance, and pharmaceutical companies…

    Medical Education & Training: Failing Forward
    Most of the American public admires and has faith in physicians. The general perception of doctors is that they are brilliant, selfless, hard-working people dedicated to healing their patients. I’m not here to bash all doctors (I am one after all), but the current caliber of the physician population is more uneven than one may assume…

    Hospitals: The Peter Principle
    Between 1975-2010, the number of physicians in the US grew by 150% (in keeping with general population growth). Healthcare administrative positions grew by 3,200%, redefining the meaning of a top-heavy organization. And in accord with the Peter Principle, when this many people rise a level or two above their level of competence, things go wrong…

    To ensure that a trusted physician in a white coat can represent them well at press conferences, the bloated hospital bureaucracy chooses the most compliant doctors to join their ranks. The usual move is to anoint a physician figurehead to the key Chief Email Officer (aka CEO) position. From a talent pool of doctors whose only leadership training is learning by counterexample come the Chief Medical Officers, and occasionally the Chief Financial Officers of your local hospital. That last position is truly a disaster, as doctors are notoriously naïve and ignorant of basic finance…

    …Non-profit hospitals contribute $24 million yearly to the American Hospital Association, which lobbies Congress. In exchange for that investment, non-profit hospitals are handsomely rewarded with $30 billion in annual taxpayer subsidies…

    Woke Medicine: The Cathedral’s Clinic
    Even the most cynical citizens prior to COVID-19 did not think individual medical doctors would change practice based on politics. It turns out, however, that medical practitioners will literally subordinate patient health to sociopolitical goals…

    As organizations like the AMA and AAP run amok, the issues and advocacy filter down to individual physicians. Those physicians, blithely assured that they know what is best for the world, have become fanatically woke and narcissistic…

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