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Who Do Our Health Care Dollars Get Spent On?

By February 14, 2022Commentary

I love health policy and research so on Valentine’s Day, it is fitting that I do a post on one of my favorite topics–on which patients do most of our health care dollars go to and for how long?  This study looks at that question in commercial health plans.   As has other research, it finds a very concentrated amount of spending among a few patients.   (JMCP Article)

The top 1% of patients accounted for 27.6% of total spending; the top 5% for 55% and the top 10% for almost 70% of all health care spending.  The top 1% had spending of almost $150,000 on average for the year.  The top 10% had average annual costs of $35,725.  At the other end, the bottom 50% in spending accounted for only 4% of all spending.   These people represented average spending of $474 per year.  Among other things, you see the enormous subsidization that the people at the bottom are doing of people at the top.  The high spending tends to exist in all categories–inpatient, outpatient and drugs.  Inpatient is the most concentrated in a few people because it isn’t used that frequently and each episode is high cost, but drugs are catching up because of specialty drugs.

So what lessons do I take from this?  One is that there is no point in all these population-based care and disease management programs, especially all the worthless digital crap being done these days.  There are two few people to make it worth the cost.  Wellness efforts may make sense if they keep people from progressing on the disease spectrum but the research doesn’t actually show that.  That top 5% is pretty identifiable and tends to persist year-after-year, so they can be targeted for cost minimization, but they are going to cost a lot no matter what.

The other point is that employment-based or broad-based insurance is a huge waste of money, especially in administration and profit.  The bottom 50% or even 75% would be far better off to just pay out of pocket, with a catastrophic backup.  For the high-cost group what makes the most sense is probably to have a government program that auctions off the care of these people  to a plan or care manager.  A flat amount would be paid for the ongoing health care needs and the manager would contract with providers and take other steps to maximize quality and minimize costs.  I think this approach would end up saving a huge amount of money, which would allow higher wage increases from employers and lower taxes for the populace.

Join the discussion 7 Comments

  • Jim says:

    Well said. Agree 100% about your thoughts on the high-cost groups.

  • LM says:

    Is catastrophic backup available for someone over 30 years old?

    • Kevin Roche says:

      right now it is almost impossible to sell a catastrophic plan in the US due to Obamacare rules. I was talking of a possible reconfiguration of the system

  • dirtyjobsguy says:

    Looking at my small companies health plans which are unusual in that we reimburse almost all out of pocket costs, I see a subtier of expenses that are rising in cost, basically anything associated with hospitals. I had one employee who had a genuine extraordinary cost case who made a complete recovery with months in the hospital. But our other big expenses are pretty much C sections, imaging and tests etc. In these cases health insurance is much like auto collision insurance with shared risks across the pool. With colonoscopies listing at $10K and other imaging in the $4-8K billing, these are usually beyond most of my employees savings plans. It seems that dropping the medicare type code billing would help a lot and allow people to price shop, but the lack of true competition in the hospital industry is the real villian.

  • Narcissus Petit says:

    Hope this isn’t a Captain Obvious question, but isn’t risk-spreading the entire point of insurance? Experienced drivers subsidize new drivers’ car insurance. Healthy people subsidize sick peoples’ health insurance. Obamacare distorted the health insurance market same as mandatory car insurance distorted that market. Can’t see our modern risk-averse society going back to earlier arrangements, can you?

  • Christopher B says:


    That’s a typical misconception of insurance that’s highly prevalent after the Obam-ination-care debates. No insurance company works on the ‘pay it forward’ (or backwards) basis.

    For insurance that covers discrete identifiable events like automobile accidents or illness, the company will try to bill premiums equal to expected claims (plus costs and profit) within a time period, usually a year since that’s the typical renewal period. This is not healthy people or careful drivers subsiding other drivers but *people who are expected to have a claim* bearing the shared costs of the expected claims. If that was not true then there would be no reason to charge younger drivers higher premiums This is also why your auto insurance never covers oil changes. Costs that can be predicted with reasonable certainty have no value as insurance. What we think of as ‘health insurance’ is really pre-paid health care laundered through insurance companies. This is another significant distortion driven by ‘heath insurance’ being provided by employers because employees want as many opportunities as possible to unlock the value of the wages they are forced to forgo by the tax treatment of ‘health insurance’ premiums paid by employers.

    The distortion that Obamacare brought on the market was not mandated purchase. The comparison of auto and health insurance is not apples to apples. As Kevin alluded to in his comment, the real distortion in Obamacare was the mandatory inclusion of many ‘benefits’ that outlawed the sale of true catastrophic health coverage.

  • Jolie says:

    Who are the 5%?

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