The Agency for Healthcare Research and Quality (AHRQ) has updated its estimate of the concentration of medical expenditures, previously reported as of 1996. In 2012:
- Total medical spending was $1.35 trillion;
- One percent of people accounted for 22.7 percent of total health expenditures, with an annual mean expenditure of $97,956;
- Five percent of people accounted for 50.0 percent of the total, with an annual mean expenditure of $43,058;
- Ten percent of people accounted for 66.0 of the total, with a mean annual expenditure of $28,468;
- Fifty percent of people accounted for 97.7 percent of the total; and
- Fifty percent of the people accounted for only 2.3 percent of the total.
This skew is important to understand for two reasons. First, it explains why “insurance” is important in health care, but why most of us should be able to happily live many years without having to interact with our health insurer until we get hit with a catastrophic illness.
Second, it prepares us for the criticism that consumer-driven health care, including Health Savings Accounts and other tools that put spending power in the hands of the patient directly, cannot control the growth in health spending. If the spending is concentrated in a small proportion of people whose illnesses are costing tens of thousands of dollars a year, we cannot get control of spending by encouraging generally healthy people to go to convenient, retail clinics instead of emergency departments.
However, this can work for higher priced services, too. When a large group’s benefit plan offered patients financial incentives to use lower priced hospitals for procedures, they save money by “reference pricing” orthopedic surgery: If patients wanted to use a higher priced hospitals, they paid the difference. American patients also take advantage of lower hospital prices in Mexico to save money.
Indeed, the more intense and expensive the procedure, the more important it is to be consumer-driven.