Concentration of Health Care Expenses in the US

It took me a little longer to get to this post than I expected, it's been a busy week.

I was looking for a report covering the issue in some detail that was not behind a pay wall.  The High Concentration of U.S. Health Care Expenditures by MW Stanton* fits the bill nicely.  I've seen this data in various places and it is all fairly similar, all the facts below will be taken from this report.  I believe the essential problem driving US health care problems, and really problems throughout the western world, is that health care costs are so concentrated that there is a serious disconnect between people's experiences and the actual costs of the system.  There is a basic distrust rooted in the fact that we don't see where the dollars are going to in our own lives.  This disparity comes clearly in the statistics.

• 5% of the population accounts for 49% of expenses (2002)
• 34% of those in the top 5% of spenders in 2002 where also in the top 5% for 2003 
• Those over 65 were 43% of the top 5% of spenders, this isn't a solely age related phenomenon
• The 15 most expensive conditions account for 44% of expenses
• The lower 50% of spenders account for only 3% of expenditures

While this data doesn't lead us to particulars about how to fix our current system it does tell us what some of the systemic issues are.  Mostly, it tells us that what people need insurance against is becoming part of the top 5% (or top 10% which isn't much better).  It also tells us that insurance needs to cover us for several years in the top part of the distribution. Further, for an individual insurer costs are always controlled most effectively by seeking to insure the lower 50% of spenders which still represent a very large pool.  For the insured however, we never know if we're going to be part of that 5% tomorrow, which is what we're trying to insure against.

It should also be noted that with costs so disparate there are differences in what each of us needs the health care system to do for us.  A system that is most efficient for paying the health care expenses of the 50% of the population that only spends 3% of the health care dollars isn't going to be the same as that which pools the resources of the other 95% to pay for the unlucky 5%.  For most of us, the most efficient system is likely no system at all, or health savings accounts or other mechanisms that can be used to pay the low day to day expenses.  However, if something goes wrong than we will quickly become very worried about how the system works for the upper 5%.

This does of course leave open the possibility that separate systems for basic and costly care could be constructed, perhaps with the government, or government regulated insurers, providing mandatory catastrophic coverage with an lightly regulated system for the rest of our health expenditures.  I haven't heard this proposed though so won't spend time on it.  I'll take up some more issues related to this in the next post.

*Stanton MW. The High Concentration of U.S. Health Care Expenditures. Research in Action, Issue 19. AHRQ Publication No. 06-0060, June 2006. Agency for Healthcare Research and Quality, Rockville, MD. http://www.ahrq.gov/research/ria19/expendria.htm