Economic snapshot | Health

Health spending concentrated among only a few unlucky ones: Medicaid provides meaningful safety net

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Health expenditures in the United States are incredibly concentrated. For instance, individuals can go years without spending much at all, but when one suddenly falls ill or gets into a severe accident, the costs can be enormous. As shown in the infographic below, half of all health-care dollars are spent by only five percent of the population, while the top 20 percent of spenders consume 82 percent of all health-care dollars.1

Health insurance (both public and private) provides financial insulation from unpredictable and potentially large economic health shocks. The value of insurance has been reinforced recently  in a randomized health insurance experiment demonstrating that Medicaid drastically reduced the percent of people who faced catastrophic out-of-pocket medical expenditures (from 5.5 percent to about 1 percent).2 Receipt of Medicaid also halved the odds that beneficiaries would experience other forms of financial strain (like taking out loans or delaying other payments) due to out-of-pocket medical expenditures.

The extreme concentration of health costs shown in the infographic also demonstrates that containing health-care cost growth necessitates focusing on the few very high spenders. These are, almost by definition, extremely sick people that desperately need care. Yesterday, we released a new report that examines the problems associated with efforts that implicitly ignore this point by forcing people into less-comprehensive insurance.

1. Authors’ analysis of Medical Expenditure Panel microdata (MEPS). 2010. Full-year Consolidated Data File, PUF no. HC-138 [machine-readable microdata file]. Rockville, Md.: Agency for Healthcare Research and Quality. http://meps.ahrq.gov/data_stats/download_data_files_detail.jsp?cboPufNumber=HC-138.

2. Baicker, Katherine, et al. 2013. “The Oregon Experiment – Effects of Medicaid on Clinical Outcomes.” The New England Journal of Medicine, vol. 368, no.18, pp. 1713–1722.


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