• The health spending distribution is very skewed

    Thanks go to Jon Cohn for referencing (and quoting) a very good Movin’ Meat post. It includes a Kaiser Family Foundation-produced figure that needs to appear here, if only for reference.

    Let’s let shadowfax of Movin’ Meat explain, since he does it so well:

    Though the data is a few years old, I doubt the distribution has changed. To emphasize, HALF of all health care costs in the US is concentrated in only 5% of the population, and 80% of costs are accounted for by the top quintile! [...]

    shadowfax didn’t say it, but it is in the graph, half (HALF!!!) the population accounts for only 3.1% of health care spending. All those people — every one of them — could be in a high deductible health plan which might reduce their spending by [insert your most optimistic, yet realistic estimate -- I say 10%]. It would not matter! Overall health care costs would be about the same.

    Moreover, high deductible plans wouldn’t do much for most of the rest of the distribution either. shadowfax explains:

    So the effect here is that with such a concentration of costs in such a small segment of the population, the ability of the larger population to move the market is highly restricted. You can make 80% of consumers highly price sensitive, but they can only affect a tiny fraction of healthcare spending. And for the generally well, their costs are probably those which are least responsible for the spiraling inflation. They’re not getting $30,000 stents or prolonged ICU stays, or needing complex chronic disease management.

    Conversely, those who are high consumers of health care simply cannot be made more price sensitive, since their costs are probably well beyond what they could pay in any event, and for most are well beyond the limits of even a catastrophic health insurance policy. Once you are told that you need a bypass/chemo/stent/dialysis/NICU etc, etc, etc, the costs are so overwhelming that a consumer cannot possibly pay them out of pocket. Since, by definition, these catastrophic costs are paid by some form of insurance, the consumer cannot have much financial interest in cost containment. For most, when they are confronted with a major or life-threatening illness, their entire focus shifts to survival, and they could care less about the cost. Further, many who are in this sick/expensive category have some diminished capacity with regard to their information gathering and decision-making. I’m thinking particularly of the elderly and those who have had strokes or any one of a multitude of illnesses which impact cognitive function or other functional capacity. These patients struggle with their activities of daily living — getting dressed, bathing, transportation, housing, taking their meds. Their ability (let alone interest) in price-shopping their doctors is minimal to nonexistent, even if they had an economic incentive to do so. Taking someone who has a serious illness and making them have more “skin in the game” would represent a cruel additional hardship, but would be ineffective in creating an economic environment in which consumer behavior brought down spiraling health care costs.

    Share
    Comments closed
     
    • Duh… this is why we have insurance. I guess this should be publicized but it shouldn’t be news to anyone.
      My entire lifetime medical expenses have been less than the cost of insurance for a single year. However, I still buy insurance because I know if I get sick, it will get very expensive very fast and will wipe out my savings. I have a high deductible plan so I am basically protecting myself against catastrophe. (
      (BTW, this is the same logic for house and car insurance. I have never made a claim on my house insurance but I buy it every year. The few claims I have made on my car insurance have been less than the annual cost.)
      The cost distribution also demonstrates why it is so profitable for the insurance companies to “cherry pick” their customers. (And by inference why the largest pool – universal coverage – is the best policy for insurance plans.) I can only buy insurance because I am not sick and have never been sick but those who are not as lucky can’t buy insurance. Even with my good health history, it is a difficult process to convince the insurance underwriters that I won’t ever use the insurance I am buying (which seems to be their current criteria for acceptance).

    • Most of the proposals I see for addressing costs coming from the right look to me as though they are trying to address the spending done by the 50% or people incurring 3% of our costs. If you read through the rest of his post you see what I see every day. People do not come in and ask about price, they are interested in results. Even with results, they are still constrained by proximity issues.

      Surprisingly few of my patients are willing to drive 50 miles to Philadelphia to have their kids seen by one of the world’s premiere children’s hospitals and instead insist on receiving care locally. For older adults this is even more common. A 72 y/o woman or man when faced with the option of local care or driving to an unfamiliar place 50-100 miles away almost always stays local. Someone still needs to go home and feed the dogs/cats. Life does not stop because one’s spouse needs to go to the hospital. Driving to an unfamiliar location while under the stress of serious illness is very difficult.

      Steve

    • Isn’t one of the intents of consumer driven healthcare cost control on the supply side via competition, though?

      That is, it’s not just what the price-sensitive eighty-percent save, I would think, but also what costs they depress across the board, e.g., facilities or staffing.

      Sure, it might still not be enough, but it seems like it ought to be part of the discussion.

      • Competition matters. It would matter with or without high-deductible plans. Competition is mostly irrelevant to traditional Medicare though. Meanwhile, the competition rhetoric has been focused on plans not providers. The former may be concentrated, but the latter are integrating and merging like crazy.

        What’s a productive path in line with current law and the general way things are going? I’ve suggested ACOs + all-payer rate setting. Maybe I should post on that again sometime.

    • This graph illustrates clearly (IMO) what is seldom addressed in discussions regarding the health care delivery system – the overall state of health of the population in general. We can tinker with the delivery system and insurance model all we want, but if the overall state of health of the public continues on its current trajectory, none of it will matter – costs will continue to rise.

    • Austin,

      Sorry, I was not clear. I was referring to the “essential” and “predictable” goods and services of which price-conscious consumers would (theoretically) depress the costs.

    • It seems that we’re looking a one-year chart, thus a little limited? Perhaps something that we need to know, is: who are the people in the top 5%? How many have unexpected, high-cost, shorter-term problems (such as Mark S. might insure for)? In unsophisticated arguments people tend to assume this is a high number (anyone can have an auto accident, etc.). It might help to know.

      What if it’s quite a low percent, or if it might be expected to fall to a very low percent as we learn more? If most costs incurred rather predictably, by the people who’ve had a stroke or whatever, then maybe we could promote competitive systems for most people, try to do something about the provider-merger issue, while using, as you suggest, ACOs for the others?

      I have one big concern with ACOs, though. Where I live there’s one large one, and then some very pricey health plans. For many people, this may not the best situation. So I worry about putting low-income or rural people into ACOs from which they don’t get much care, but to which they really don’t have alternatives.

    • Shopping for price and saving on cost:

      I had a German chemist as an office partner for many years and he once decided to shop for prices on a dental procedure he needed. He asked his dentist for the billing codes for his recommended procedure and called three other dentists and asked them for prices for those codes. No dice of course, he would have to come in and get a complete evaluation to get a price. This is like shopping for TV’s at stores that charge you a couple of hundred bucks at the door to come in and browse whether or not you buy anything. Some market.

      If you are young and want to save money on dental care it’s a fact that a couple of plates will cost you far less to maintain over your lifetime than your natural teeth. Anyone who hasn’t opted for this cost saving procedure is not allowed to talk to me about market solutions. They are not thinking rationally about health care. They are emotionally attached to some expensive to maintain body parts.

      Richard A

    • When I look at the graph I see two markets. In the article The High Concentration of U.S. Health Care Expenditures, http://www.ahrq.gov/research/ria19/expendria.htm, they confirm this observation by saying that older people are much more likely to be the big spenders due to chronic illnesses. It should not be a surprise to say the elderly spend more on average than the non-elderly. Since there is a large Medicare component to the graph, I am not sure we can use this graph to draw conclusions about the feasibilty of high deductible or competition options in the non-elderly health insurance market.

      • It’s a good point. But I would be a considerable sum that the spending for the nonelderly is highly skewed too. I would also bet that someone has tabulated this. Finally, I would bet everything I own that I do not know (or recall) where that table or graph is. Anybody know?