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Concentration of US Health Spending

By April 16, 2024Commentary

There are several ways to look at the distribution of health care spending in the United States, for example, by payment type, by provider type or by what condition is being treated.  One of the most revealing analyses is who the money is spent on.  For a number of years a unit in the federal government called the Agency for Healthcare Research and Quality has put out a brief on the concentration of health care spending among patients.  The most recent version, covering 2021, has just been released.   As with all of health care, this analysis was impacted by the coronavirus epidemic.   (Stat. Brief)

The level of concentration is truly staggering.  Total expenditures for patient health care in 2021 were $2.3 trillion, an astounding amount in itself.   Just 1% of the population accounts for 24% of all health care spending, an average of $167,000 for that year, and a minimum of $87,000.  The top 5% of spenders represented over 50% of total spending, at an average of $71,000.  At the other end, the bottom 50% in spending accounted for less than 3% of spending.  This bottom 50% spent only $1,374 or less on health care in that year, and a miniscule average of $385.

As you can imagine, persons over age 65 were most likely to be in the top spending group, as were persons who had severe chronic disease, particularly heart or orthopedic conditions.  About 26% of costs for the top 5% cohort were for hospital care.   About three quarters of this health care was paid for by Medicare or private insurance.  While this brief does not specifically address the issue, other research has shown that the same people often persist as high-cost patients.  Some obviously die, and others had one-time events, like a very serious car or work accident or an acute cancer episode that is resolved.  But most have ongoing expensive-to-treat diseases, such as dementia or heart failure.

Analyses of health spending concentration are a useful guide to public and health management policy.  From my perspective, the analyses call into question the whole notion of ensuring that everyone has health insurance.  Health insurance involves relatively large administrative costs for both the insurer and providers and encourages excessive utilization.  When 50% of the population has almost no annual health spending, why should those people be forced to purchase health insurance?  It would seem to make as much sense to have people pay directly for most of their health care and to have a public or other fund that covers catastrophic events.

Analyses of concentration of spending in specific populations can also help with efforts to better manage health and health care.   Those who are high spenders can be identified and assistance given to ensure that they receive appropriate care, at a reasonable price, and that they are incented to engage in healthy behaviors.  Avoiding hospitalizations is especially key to reducing spending.  Smoking, excessive drug and alcohol use, poor diets and lack of exercise are all tied to poor health and high health spending.  Individuals should be incentivized and penalized for not changing those behaviors, otherwise they are in essence forcing others to pay for their irresponsible behaviors.  No excuses should be accepted.


Join the discussion 6 Comments

  • rubbertayers says:

    Don’t people with unhealthy lifestyles die younger though, which saves the government money?

  • Ann in L.A. says:

    I’m getting a degree in healthcare delivery, and we just spent a semester on HC financing. We had lots of poobahs from local hospitals talk to us about the things they are seeing, but it wasn’t until the end of the term that I realized: all they talked about was how to move the money we have around, mostly by adding more layers of administration at the insurance or hospital level and new, complex provider-payment schemes. (As well as AI driven “clinical decision support” to limit unnecessary medical orders…jury’s still out on whether that will make any difference.)

    In the entire term, no one ever mentioned the need to increase the supply of providers, medical schools, nursing schools, clinics, emergency rooms, and hospital beds.

    Last I checked, Econ 101 still had something to say about how prices are set, and I don’t believe anyone has amended the Law of Supply and Demand to exempt healthcare.

    So, in the end, I’m utterly shocked that administrators are focused on administrative solutions!

    • Kevin Roche says:

      People are generally more focused on revenue generation than cost control. And greater supply should mean lower prices, unless the prices are all controlled by either government or large private health care entities.

  • Mike M. says:

    I wonder what percentage of the population is in that one percent for a year. I am guessing 50% since many of those people are in their last year of life, which is something that will happen to all of us.

    24% of spending on 1% of the population is probably really low for insurance. That is the point of insurance.

    • Kevin Roche says:

      Very few of us ever hit that 1%. Studies on the persistence of high spending find that many individuals are high spenders for multiple years and the vast majority of the population never has a year in which it comes close to that annual 1% spending level.

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