Have you ever read an article in which the writer compares the incomes of the top 1 percent to the bottom 99 percent over, say, the last decade? The problem: The author is encouraging you to think that the people in the top 1 percent at the beginning of the decade are the same people who are in the top 1 percent at the end of the decade. But they aren’t. People move in and out of this category with surprising frequency. Yet, if they aren’t the same people, what’s the point of the comparison?
A similar thing happens in healthcare. I frequently see writers say that a small number of people spend most of the healthcare dollars. True. But the small number this year is not the same group of people as the small number last year, or the year before.
As in the case of the income comparisons, readers can be misled into thinking that our healthcare problems boil down to how to take care of a small number of people. Not so. A study by the Agency for Healthcare Research and Quality shows how much fluidity there is among the categories of patients who spend the most healthcare dollars:
- In 2008, 1 percent of the population accounted for about one-fifth of all healthcare spending. Yet the following year, 80 percent of these patients dropped out of the top 1 percent category.
- The top 5 percent of the population accounted for nearly half of all healthcare spending. Yet 62 percent of these patients dropped out of this category the following year.
- Although the top 10 percent spent 64 percent of all healthcare dollars, the following year fewer than half of these patients were still in this category.
- At the other end of the spectrum, the bottom half of the population spent only 3 percent of healthcare dollars. Yet one of every four of these patients moved to the top half the following year.
Here is something else that’s interesting:
- The top 10 percent are spending almost two-thirds of all healthcare dollars in any one year.
- Of those who remained in this category for both years, 43 percent were elderly, and another 40 percent were under 18 years of age.
In other words, the persistently sick tend to be young or old. Among the adult, non-elderly population who were in the top 10 percent the first year, almost three of every four were in the bottom 75 percent of spenders the second year.
Why is this important? If a small number of people spent most of the healthcare money and they were the same people year after year, there would not be much point in having a real market for health insurance.
Consider fire insurance. This makes sense only if fires are largely unpredictable and could happen to any homeowner. But suppose that the small percentage of homeowners who experience a fire in any one year are the very same people who experience a fire every year. In such a world, fire insurance would not be very practical. The same thing is true in healthcare.
Most people in health policy view health insurance as just a way to pay medical bills. My latest book, Priceless: Curing the Healthcare Crisis, is one of the very few places in all of the health policy literature where you will find a defense of the idea that there is a social need for real health insurance. It is also one of the very few places you will find an argument that we need a real market for health risks to determine the best way to insure against them and to determine what is the best way to partition insurance products between self-insurance and third-party insurance.
 Steven B. Cohen and William Yu, “The Concentration and Persistence in the Level of Health Expenditures over Time: Estimates for the US Population, 2008–2009,” Agency for Healthcare Research & Quality, Statistical Brief No. 354, January 2012.