Why 5 Percent of Americans Account for Half of U.S. Healthcare Spending
American healthcare spending looks nothing like a bell curve. It looks more like a cliff.
According to the Agency for Healthcare Research and Quality, the most expensive 5 percent of Americans accounted for 48.8 percent of all healthcare expenditures in 2019. The top 1 percent alone accounted for 20.7 percent. Meanwhile, the least expensive half of the population accounted for only 3 percent.
To enter that top 1 percent required at least $78,125 in annual healthcare spending, and the average patient in the group generated more than $130,000. Among the bottom half of Americans, average spending was only $374 for the entire year.
At first glance, the conclusion seems obvious. Find the expensive patients and reduce what we spend on them. The reality is much more complicated.
High cost patients are not simply people using too much healthcare. They are disproportionately people with serious illness, multiple chronic conditions, major hospitalizations, surgery, disability and expensive medications. Among the top 5 percent, common conditions included hypertension, joint disease, neurologic disorders, mental illness, heart disease, respiratory disease and diabetes. Frequently, several conditions exist simultaneously.
Hospitalization changes the economics dramatically. Inpatient care represented nearly 37 percent of expenditures among the top 5 percent of spenders, compared with essentially nothing among the least expensive half of the population. Prescription drugs represented another 22 percent.
This helps explain why ordinary office visits are rarely the central problem. An annual examination, blood pressure prescription or preventive visit is financially trivial compared with an ICU admission, cancer treatment, organ transplantation, dialysis, major surgery or prolonged hospitalization.
Dentistry offers an interesting contrast. Dental and related spending represents a relatively small percentage of expenditures among the highest cost patients, but a much larger share among healthier people. That does not mean healthy Americans spend enormous amounts on dentistry. It means they spend relatively little on hospitalization and chronic disease, allowing routine dental care to represent a larger portion of a much smaller healthcare budget.
The distribution of healthcare spending is therefore real and remarkably concentrated. But one of the easiest mistakes is assuming that the same 5 percent remain expensive year after year. They do not.
Someone can spend very little on healthcare for decades, develop cancer, suffer a heart attack, undergo bypass surgery or experience catastrophic trauma, suddenly become one of America’s most expensive patients, and then recover, stabilize or die. Research reviewing high cost populations has found that only a minority remain persistently high cost over subsequent years.
A study of more than one million patients receiving care through the Veterans Health Administration and Medicare illustrates this turnover. Among veterans who entered the top 10 percent of healthcare spending, only 32 percent remained high cost one year later. Just 7 percent remained in the top 10 percent throughout four years of follow up.
The healthcare system therefore has a revolving door of expensive patients. That matters because it creates one of the most important statistical traps in healthcare management, regression to the mean.
Imagine a patient who ordinarily generates $10,000 in annual healthcare expenses. One year he suffers a heart attack, undergoes surgery and experiences complications that push spending to $100,000. A health system identifies him as a superuser, enrolls him in a special care management program, and discovers that his spending falls to $20,000 the following year. It would be tempting to declare an $80,000 savings. But his costs might have fallen anyway because the crisis ended.
Researchers studying nearly 300,000 New Jersey patients found that hospital costs among people selected because of heavy inpatient utilization declined approximately 70 percent during the following two years. Much of that decline occurred naturally as acute illnesses resolved, patients recovered or patients died.
This means any program claiming dramatic savings by managing last year’s most expensive patients deserves a simple question. What happened to a comparable control group? Without that comparison, natural recovery can masquerade as successful cost containment.
The patients who offer the greatest opportunity for sustained improvement may therefore not be those with the biggest bill this year. They may be patients whose medical and social conditions make continued high spending predictable. Multiple chronic diseases, disability, mental illness, kidney failure, chronic pain and repeated emergency department use are among the characteristics associated with persistent costs.
These patients often require something medicine has historically struggled to provide well, coordinated care across diseases, specialists, medications and social circumstances. That is very different from simply reducing services.
Another common assumption is that America’s healthcare spending problem is primarily an end of life problem. The image is emotionally powerful. An elderly patient with little chance of recovery spends weeks in an intensive care unit while physicians continue increasingly aggressive treatment.
These situations certainly occur, and better conversations about prognosis, hospice, palliative care and patients’ goals can improve care while sometimes avoiding unwanted treatment. But end of life spending does not explain most American healthcare expenditures.
Research examining national spending estimated that approximately 13 percent of healthcare expenditures occurred during patients’ final year of life. Among the most expensive 5 percent of Americans, only about 11 percent were in their final year. Most expensive patients are not dying.
Many are people experiencing temporary catastrophic illness, while another important group lives for years with combinations of chronic disease, disability and functional limitations. That persistently complex group may offer considerably greater opportunity for improved care and sustainable savings than focusing narrowly on the final months of life.
Even this does not address the largest blind spot in the discussion. Knowing who receives healthcare dollars does not explain why American healthcare costs so much. Total spending ultimately reflects two variables, how much healthcare people receive and how much each unit of healthcare costs.
International comparisons repeatedly show that Americans are not consuming twice as much medicine as people in other wealthy countries. In many categories, they use less. A recent KFF comparison found that the United States spent $13,432 per person on healthcare compared with $7,393 across comparable wealthy nations. Yet Americans generally had fewer physician visits, fewer hospital discharges and shorter hospital stays. The difference increasingly points toward price.
American hospitals frequently receive more for procedures. Physician services cost more. Prescription drugs often cost more. Private insurers can pay dramatically more than Medicare and considerably more than healthcare systems abroad for similar services.
Coronary angioplasty illustrates the phenomenon. Comparable countries performed more inpatient angioplasties per capita than the United States, yet Medicare’s average payment was nearly three times the average public sector price in those countries. American commercial insurers frequently paid substantially more still.
This distinction matters because debates about healthcare spending frequently focus on patient behavior. People are overweight. Patients visit emergency departments unnecessarily. Doctors order too many tests. Americans expect everything possible to be done near the end of life.
Each may contain some truth, but none adequately explains why the United States spends almost twice as much per person as comparable countries while often delivering similar or smaller quantities of care.
More than two decades ago, health economist Uwe Reinhardt and colleagues summarized the problem with an intentionally provocative title, “It’s the Prices, Stupid.” Researchers revisited the question years later and reached essentially the same conclusion. Prices still matter enormously.
For dentists, the lesson goes beyond national healthcare policy. We regularly see the difference between utilization and price inside our own practices. A patient with one implant can generate more revenue than several patients receiving routine preventive care. A full arch rehabilitation can outweigh dozens of examinations. A patient who appears extraordinarily valuable this year may disappear from that category once treatment is completed.
That does not mean the comprehensive patient was overtreated, just as a cancer patient generating $200,000 in medical spending was not necessarily overtreated. High spending and waste are not synonyms.
The distinction also matters when evaluating insurance plans, DSOs, consultants, vendors or software companies promising enormous reductions in costs or dramatic improvements in case acceptance. Before and after numbers can be seductive. But if the starting population was selected because it was unusually expensive, unusually unproductive or unusually unhealthy, some improvement may occur naturally.
Dentists understand this intuitively in clinical care. A patient presents with acute pain at its worst, receives treatment, and feels better afterward. We would never assume that every improvement resulted from a particular intervention without considering the natural history of the condition. Healthcare economics deserves the same skepticism.
The real problem is not that 5 percent of Americans somehow consume half of healthcare. Serious illness is naturally concentrated, and insurance exists precisely because none of us knows when we may suddenly join that 5 percent.
The harder question is determining which spending represents necessary treatment, which reflects preventable disease or avoidable hospitalization, which results from poor coordination, and which simply reflects extraordinarily high American prices. That distinction changes the conversation from blaming expensive patients to understanding expensive healthcare.
If tomorrow you became one of America’s most expensive patients, which costs would you want the healthcare system to eliminate?
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