Economic snapshot | Health

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

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.

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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