It is important to note that the distribution of total health care spending is not even. According to the Agency for Healthcare Research and Quality (AHRQ):
...actual spending [on health care] is distributed unevenly across individuals, different segments of the population, specific diseases, and payers. For example, analysis of health care spending shows that:
Five percent of the population accounts for almost half (49 percent) of total health care expenses.
The 15 most expensive health conditions account for 44 percent of total health care expenses.
Patients with multiple chronic conditions cost up to seven times as much as patients with only one chronic condition.30
The Kaiser Family Foundation notes that, At the other end of the spectrum, the one-half of the population with the lowest health spending accounts for just over 3 percent of spending.31 Figure 12 reproduces the data from the AHRQ study illustrating how the vast majority of the total health care spending (that is, the consumers of the service) is created by a small percentage of the U.S. population. Controlling spending, therefore, requires controlling the spending by the 5 percent of the population spending one-half of all health care expenditures.
Predictably, the elderly represent a large portion of the high spenders: People 65-79 (9 percent of the total population) represented 29 percent of the top 5 percent of spenders. Similarly, people 80 years and older (about 3 percent of the population) accounted for 14 percent of the top 5 percent of spenders... 33 Alemayehu and Warner (2004) found (see Figure 13) that over people's lifetimes, 8 percent of health care expenses:
...occurred during childhood (under age 20), 13 percent during young adulthood (20-39 years), 31 percent during middle age (40-64 years), and nearly half (49 percent) occurred after 65 years of age. Among people age 65 and older, three-quarters of expenses (or 37 percent of the lifetime total) occurred among individuals 65-84 and the rest (12 percent of the lifetime total) among people 85 and over. The total per capita lifetime expense was calculated to be $316,600.34
Age aside, the primary factors for determining the largest-spending consumers of health care depended upon several factors. First, the type of disease. According to the AHQR study, The 15 most costly medical conditions in the United States accounted for 44 percent of total U.S. health care spending in 1996; heart disease, cancer, trauma, mental disorders, and pulmonary conditions being the five most expensive diseases to manage.35 Chronic conditions, such as asthma, are the other indicators of major expense.
Those who are high spenders in one year, however, are not necessarily high spenders over the next several years:
Over longer periods of time, a considerable leveling of expenses takes place. In a study of Medicare enrollees, researchers found that although the top 1 percent of spenders accounted for 20 percent of expenses in a particular year, the top 1 percent of spenders over a 16-year period accounted for only 7 percent of expenses. The researchers concluded that there is a substantial leveling of expenses across a population when looking over several years or more compared to just a single year. An acute episode of pneumonia or a motor vehicle accident might lead to an expensive hospitalization for an otherwise healthy person, who might be in the top 1 percent for just that year but have few expenses in subsequent years. Similarly, many people have chronic conditions, such as diabetes and asthma, which are fairly expensive to treat on an ongoing basis for the rest of their lives, but in most years will not put them at the very top of health care spenders. However, each year some of those with chronic conditions will have acute episodes or complications requiring a hospitalization or other more expensive treatment.37
The distribution of health expenditures provides important context from which to interpret the rising expenditure trends-especially with respect to which adverse incentives are driving the excessive cost increases. Due to the current demographic trends, the adverse incentives created by Medicare—as identified by Finkelstein (2007)—and especially the new Medicare prescription drug benefit, are key focus areas for any health care reform effort to be effective.
30 Stanton, Mark W. (2005) The high concentration of U.S. health care expenditures Agency for Healthcare Research and Quality: Research in Action, Issue 19. AHRQ Pub. No. 06-0060.
31 Kaiser Family Foundation (2007) Trends in Health Care Costs and Spending KFF Publication #7692 (September 2007) www.kff.org.
32 Reproduced from: Stanton, Mark W. (2005) The high concentration of U.S. health care expenditures Agency for Healthcare Research and Quality: Research in Action, Issue 19. AHRQ Pub. No. 06-0060.
33 Stanton, Mark W. (2005) The high concentration of U.S. health care expenditures Agency for Healthcare Research and Quality: Research in Action, Issue 19. AHRQ Pub. No. 06-0060.
34 Alemayehu B., Warner K.E. (2004) The lifetime distribution of health care costs Health Serv Res, 39(3).
35 Stanton, Mark W. (2005) The high concentration of U.S. health care expenditures Agency for Healthcare Research and Quality: Research in Action, Issue 19. AHRQ Pub. No. 06-0060.
36 Alemayehu B., Warner K.E. (2004) The lifetime distribution of health care costs Health Serv Res, 39(3).
37 Ibid.
