By William C. Johnson, Ph.D.; Niall Brennan, M.P.P.; Sally Rodriguez, M.P.H. & John Hargraves, M.P.P.; Health Care Cost Institute
NEJM Catalyst, February 1, 2018
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.
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.
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.
By Don McCanne, M.D.
This report quantifies a well-known, important fact about health care spending. Consistently, year after year, three-fifths of the top 5 percent of health care spenders are new arrivals, with a median health care spending rise of 800 percent from the previous year. The population with high health care costs is unstable, year after year.
Those opposed to universal, comprehensive health care tell us that we should buy only the insurance that we need. Yet 3 percent of those under 65 without high health care costs will have health care spending the following year in the top 5 percent. It is almost impossible to know who most of those individuals are.
The authors state, “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.” Further, “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.”
The obvious conclusion is that everyone needs comprehensive insurance, including the young and healthy, because of the unpredictability of high health care costs. Even more important than financial security, a well designed single payer national health program would ensure that everyone would have health security as well.
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