The concentration of most U.S. health care spending in a small proportion of individuals is well documented. The notion that high health care spending only affects a small portion of people in a given year is particularly relevant to the ongoing policy debate about how to make health insurance affordable for all, while accommodating people with complex health care needs and accompanying higher costs. The distribution of health care spending is directly related to the solvency of insurance markets in which adverse selection may occur, and whether models like high-risk pools and reinsurance can be effective stabilization tools.
To better understand the patterns of spending for higher-risk enrollees, the Health Care Cost Institute studied the distribution of health care spending among commercially insured individuals and how their spending changed over time. Specifically, we analyzed the annual health care spending of more than 9 million individuals under the age of 65 in each pair of years from 2008 to 2015. Because people may change insurers over time, within each pair of years we limited our sample to people with continuous enrollment and prescription drug coverage for the full 2 years. We found that top spenders (the top 5%) account for a growing share of health care spending, and there is consistent and substantial turnover among these top spenders.
Taken together, we interpret these findings as evidence that as costs continue to rise, health insurance will play an increasingly important role in easing the financial burden of increased health care spending. For this reason, less comprehensive plans may be risky, even for consumers with low health care spending in previous years. These findings provide a timely reminder of the inherent uncertainty in health care spending in light of proposals to create significant changes in individual and group insurance markets, such as altering consumer protections created by the Affordable Care Act.
Within a Given Year, Small Proportion of Population Accounts for Majority of Health Care Spending
In 2015, the top 5% of spenders accounted for 53% of health care spending. By comparison, the bottom 50% of spenders accounted for just 4% of health care spending, and almost 13% of our sample had no spending at all. This concentration of health care spending is consistent with findings from numerous studies. The median member of the top 5% accounted for $39,409 in total spending in 2015 (payer spending plus out-of-pocket spending), with a median out-of-pocket burden of $3,850.
The concentration of health care spending among top spenders has also increased over time. The share of total spending by the top 5% steadily grew over our study period, rising from 48% in 2009 to 53% in 2015. The increased concentration is a result of faster spending growth by top spenders. Per capita spending by the top 5% of spenders grew at an average of 5% per year from 2009 to 2015, compared to an average of 3% per year for all spenders.
The implication is that both health care spending and the growth in health care spending are concentrated in a relatively small minority of individuals. These findings, consistent with existing literature, support the notion that a better understanding of health care spending and utilization of the top 5% of spenders is an important starting point to manage outcomes for this population — and that successes in that effort have the potential to meaningfully impact total spending.
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Large Degree of Turnover from Year to Year among Top Spenders
Simply put, three out of five top spenders in any given year were not top spenders in the prior year. In 2015, only 39% of the top 5% of spenders were in the top 5% of spenders in 2014. Moreover, this trend was consistent in each year from 2009 to 2015. These new top spenders came from all portions of the spending distribution. For example, in each year studied, almost 15% of top spenders were in the bottom 50% of spenders or had no spending in the previous year.
People who are new to the top 5% of spenders endure dramatic changes in their health care spending within a short period of time. The median newly top spender saw their total health care spending rise almost 800% from $4,528 in 2014 to $35,523 in 2015. While insurance plans insulated them from most of this spending increase, median out-of-pocket spending for this group also rose nearly 400% from $1,048 in 2014 to $4,067. These year-to-year changes in out-of-pocket spending are particularly jarring considering the Federal Reserve Board’s 2016 Survey of Household Economics and Decision, which reported that 44% of respondents could not afford a $400 emergency expense.
Turnover of Top Spenders Demonstrates Role of Health Insurance in Smoothing Financial Risk
In any given year, high health care spending affects only a small portion of the population. However, it would be an oversimplification to conclude that healthy consumers should view robust health insurance coverage as necessary only for the already sick. The consistent and substantial turnover in the top 5% of spenders provides evidence that high health care spending annually affects new people. For newly top spenders, health insurance plays a role in blunting exposure to total spending increase. Even though newly top spenders had substantial increases in their out-of-pocket spending, health insurance covered over 90% of the increase in spending.
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John J. Dugan, DO
The last paragraph seems key: "it would be an oversimplification to conclude that healthy consumers should view robust health insurance coverage as necessary only for the already sick." The clearest conclusion is that everyone requires fairly comprehensive health insurance (i.e. not high deductible insurance). It seems that I recently read an article about the innate optimism contained in the human spirit. Perhaps that explains why the healthy individual can rationalize that robust health insurance is only for the already sick.
February 09, 2018 at 11:25 am
Anne Marie Sims, MBA
Statistics have always stated that the top 5% of healthcare spending represents the highest majority of percentage of healthcare total dollars spent. Usually this is at the end of life or at the beginning of life. I am unclear from this article of how the lowest and highest can be interchangeable year after year and the correlation with chronic disease processes that can represent higher dollars spent.
February 07, 2018 at 1:36 pm
Allison Silvers
A similar analysis was featured in the National Academy of Medicine's (formerly IOM) "Dying in America: Appendix E." Not only do roughly 40% of the high cost individuals remain so, but only a small fraction of the top 5% are in the last year of life. There's great opportunity to improve the experience of care and the cost of care for those consistently high spenders, especially by ensuring early access to palliative care outside of the hospice benefit!
February 07, 2018 at 1:17 pm
Kevin C
This is very general and somewhat ambiguous without further explanation of the type of costs of the "biggest spenders". Were they one time things, like major trauma, transplant, etc. or continual big ticket items like a rare disease treatment?
Although the patients may not be the same, are the costs categories the same? eg. hospital costs, surgery, transplant, etc. Are they always the same big ticket items or did they change as well as the patients.
Outside of it's a small percent that account for the most cost, that's not anything that new or doesn't leave me more with ok, great, but so what? Maybe it's in the study but not in the article for space reasons?
February 05, 2018 at 12:55 pm
Joel Kallich
Am shocked that illness is not predictable and preventable by eating blueberries.
February 04, 2018 at 2:56 pm
Bharat
Many doctors and hospitals are high spenders. They order unnecessary tests especially if it benefits the group. There is no continuity of care and ownership of patients. Doctors morale is very low and always complaining. Improper treatment and medical mistakes cost a lot.
February 03, 2018 at 4:43 pm
Deborah Gerber
I strongly agree with comments from Allison and Kevin. Not sure there is much to glean from what this article states. There seem to be many potential variables and no recognizable constants. Insurance issues are not so easily identifiable either. As a (now retired) practice administrator of a very large practice that was part of one of the first "HMOs" with a financial demographic well above the norm I spoke with numerous patients telling us that they could not pay their bills because they (for example) just returned from a very expensive vacation in Hawaii and had emptied their coffers!!! Capitalism and freedom are truly wonderful but we need to realize that there is a significant segment of the population who do not choose to buy comprehensive insurance plans that are costly. Does that mean that physicians and all healthcare delivery systems should be told how much they can earn and what they should provide for free??? Try telling that to attorneys!
February 08, 2018 at 1:03 am