Transforming Health Care Through Evidence and Collaboration
Transforming Health Care Through Evidence and Collaboration

The Concentration of Health Care Spending

 

Updated charts using the latest data are available here.

Key Points From This Brief:

  • Spending for health care services is highly concentrated among a small proportion of people with very high use. Conversely, a significant portion of the population has very low health care spending.

  • People who are older or who have one or more chronic medical conditions or functional limitations are significantly more likely to be among the highest spending patients.

  • High spending persists over multiple years for many patients, while others return to more normal spending levels after an expensive episode. There is also evidence that high spending occurs near the end of life for many patients, particularly within the Medicare population.

  • Targeting the highest spenders represents the greatest opportunity to have a significant impact on overall spending, but implementation of strategies directed at high spenders is challenging for a number of reasons.

  • The concentration of health spending also has important implications for health policies related to acceptance of and compensation for differential risks.

Spending for health care services in the United States is highly concentrated among a small proportion of people with very high use. For the overallcivilian population living in the community, the latest data indicate that more than 20 percent of all personal health care spending in 2009 — or $275 billion — was on behalf of just 1 percent of the population (Figure 1). The 5 percent of the population with the highest spending was responsible for nearly half of all spending. At the other end of the spectrum, 15 percent of the population recorded no spending whatsoever in the year, and the half of the population with the lowest spending accounted for just 3 percent of total spending.i

Medicare claims data can be used to make similar calculations for the Medicare population specifically. Those analyses show that spending is somewhat less concentrated for this population since individuals across the board are more likely to use health care services. Even there, however, recent data indicate that the top 1 percent of spenders account for 14 percent of program spending and the top 5 percent are responsible for 38 percent of spending.1

With numbers like these, it is clear that per-person spending among the highest users is substantial and represents a natural starting point when thinking about how to curb health care spending. For instance, the average expenditure for each of the approximately 3 million people comprising the top 1 percent of spenders was more than $90,000 in2009 (Figure 2). The top 5 percent of spenders were responsible for $623 billion in expenditures or nearly $41,000 per patient. In contrast, mean annual spending for the bottom half of distribution was just $236 per person, totaling only $36 billion for the entire group of more than 150 million people.

While the highly skewed distribution of spending has been observed for many years, spending has actually become slightly less concentrated over time as high spending has spread to a broader swath of the population. For example, whereas 56 percent of spending was concentrated among the top 5 percent in 1987,2 this group accounted for just under half of spending in 2009. Similarly, the spending share for the top 1 percent fell from 28 percent in 1987 to about 22 percent in 2009. One explanation offered for this flattening of the distribution is the rise in population risk factors — most notably, obesity — and the corresponding increase in treated prevalence for chronic diseases linked to these risk factors, such as hypertension, diabetes and hyperlipidemia.3 That is, as more people are diagnosed with and treated for these common chronic conditions, a larger share of the population will incur relatively high medical spending.

i These figures, derived from the Medical Expenditure Panel Survey (MEPS), exclude care provided to residents of institutions, such as long-term care facilities and penitentiaries, as well as care for military and other non-civilian members of the population. Likewise, they reflect spending only for personal health care services, not the much broader spending reflected in the National Health Expenditure Accounts (NHEA), which include government public health spending, administrative costs, research, capital investments and many other public and private programs such as school health and worksite wellness. As such, the total spending estimate from the MEPS ($1.259 trillion in 2009) is significantly lower than the total spending reflected in the NHEA ($2.496 trillion in 2009).

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