THE CONCENTRATION AND PERSISTENCE OF HEALTH CARE SPENDING: Much of the Conventional Wisdom Behind Current Policy Has Ambiguous Empirical Support

By Miller, Tom | Regulation, Winter 2017 | Go to article overview

THE CONCENTRATION AND PERSISTENCE OF HEALTH CARE SPENDING: Much of the Conventional Wisdom Behind Current Policy Has Ambiguous Empirical Support


Miller, Tom, Regulation


This year's debate over trying to repeal, replace, or just rename Obamacare often recycled the well-worn nostrums concerning private health insurance arrangements. Among them:

* A large majority of health care spending involves a much smaller, less healthy portion of the insured population, which means that the distribution of health care spending is highly concentrated.

* Most individuals are healthy and need to spend very little on health care each year.

* Sustainable health insurance markets require that healthy customers pay more than they want so that less healthy customers can pay less for the care they need.

* Extensive government intervention, such as standardized benefits, generous subsidies, and limits on risk-based underwriting, is necessary in health care markets because those markets are prone to adverse selection and dangerous "death spirals."

Voila. These four points have given you the equivalent of graduate-level course work in health policy. You could pass yourself off as an expert. At a minimum, you could serve as either an insurance industry lobbyist, political advocate of conventional wisdom, or defender of the Affordable Care Act's (ACA) intertwined mix of mandates, minimum benefits, insurance rating rules, and taxpayer subsidies. (Sometimes, it's hard to keep those roles apart.)

But what's more interesting is how limited is the empirical base on which this chain of standard assumptions is built and linked.

It turns out that health care spending, at least in the underage-65 private markets for health insurance, has become less, not more, concentrated in recent decades. After a significant decline in spending concentration about two decades ago, it has stabilized at that lower level. There is a significant decline in concentrated spending among individuals from one year to the next. That decline in the "persistence" of high spending continues in people's later years, though at a less significant rate.

Nevertheless, the overall pattern remains that a majority of individuals below Medicare age, or people not redirected to other forms of public insurance coverage (primarily Medicaid) as a result of longer-term disabling and income-limiting health conditions, just don't need to spend that much of their income on health care. Whether they still should be required to pay much more for their insurance under the ACA or some other government intervention is largely a matter of policymakers' choice rather than economic necessity.

Questioning the soft foundation of longstanding assumptions about the nature and sustainability of private health insurance markets matters across a range of contemporary policy discussions and health reform options. They involve issues such as community rating, standardized minimum benefits, risk-protection subsidies, the individual insurance purchasing mandate, health savings accounts, and retirement savings incentives.

DO LOW SPENDERS HAVE A DUTY TO PAY MORE?

Marc Berk and Zhengyi Fang offered one recent update to the still-modest volume of mainstream empirical research on these issues. They highlighted what should already be obvious to casual consumers of conventional health policy wisdom.

Berk and Fang found that the ongoing level of health care expenditures incurred by the lower-spending half of the U.S. population, for noninstitutionalized services, ranged between 2.7% and 3.5% between 1977 and 2014. They analyzed the most likely traits of low spenders and found these people considered themselves to be in good or excellent health. Compared to those in the upper half of annual health spending, the low spenders were younger (twice as likely to be below age 18 and four times less likely to be over age 65). They also were four times as likely to lack insurance coverage. High spenders were somewhat more likely to have public insurance coverage. The latter were more than twice as likely to report difficulty with immediate access to care. …

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