Who Causes Health Care Spending?

A Kaiser Family Foundation report shows the average health care spending by age group in 2006.  The report also showed the concentration of health care spending, “almost half of all health care spending was used to treat just 5% of the population.”  The bottom 50% of patients was responsible for only 3.2% of total health care spending.  People over the age of 64, who would be covered by Medicare or Medicaid, cost an average of $8,776 per year.

The top 1% of expensive patients, with a mean health care spending of $76,476 per patient, accounted for 21.2% of all health care spending in 2006.  If they had private insurance 22.6% would be out of pocket, costing the patient $17,284 for the year.  High out of pocket expenses help explain why so many people end up declaring bankruptcy.  A Harvard study showed that in 2007, 62.1% of all bankruptcies were medically related.  Of the medically related bankruptcies 78% had health insurance.  The average out of pocket expense for a person with health insurance who declared bankruptcy was $17,749.  People without health insurance who declared bankruptcy paid an average of $26,971.  People with health insurance who declared bankruptcy accounted for 44.4% of all bankruptcies in 2007. 

The US Centers for Disease Control & Prevention did a study tracking the cost of obesity in the health care system.(c)  The CDC found a large difference in the amount of money spent on each patient and a large impact on total health care costs.  In 2006 an obese person cost an additional $1,429 per year for medical treatment.  They calculated that obesity was responsible for 9.1% of all health care spending.  And the number of obese people continues to increase.

                The KFF study pointed to many other factors that are driving up health care costs.  The U.S. population is aging and as the diagram showed older patients cost more.  Chronic diseases like diabetes, asthma, and heart disease have increased in America.  The lack of integrated electronic systems to store and transmit data contributes to higher costs.  Promoting evidence based medicine, reducing medical errors, and paying for performance or outcomes are all ways to keep down health care costs. 

The government pays for the most expensive years and the most expensive costs in our health care system.  At the age of 65 we get health care through the government under Medicare.  If you get very sick, and lose your job, you will get health care through Medicaid.  In 2007 there were 72,076,000 people on Medicare and Medicaid.  This is 24% of the United States Population.  Our government provides health care to the 24% of people that are the oldest and most expensive.  The top 20% of all health care coverage accounts for 79.80% of total health care spending.  Our government is covering the most expensive people and veteran’s health care and pays only 46.2% of all health care spending.   

                The government already covers the sickest and most expensive people in America.  Keeping people healthy in younger years covered by private health insurance will reduce costs in later years covered by the government and our tax dollars.  Implementing best practices will help reduce costs and keep them down.

This article is an excerpt of Eric Wilson’s groundbreaking new book, What You Don’t Know Can Hurt America: A Voter’s Guide.

Purchase the e-book here.