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February 17, 2012updated 13 Apr 2017 8:46am

Health costs driven by a small minority

However, costs are spread extremely unevenly across the population, reveals a new study based on US data, which points to chronic diseases related to the dramatic rise in obesity levels as major driver of rising health care costs. When statistics about the cost of health care are discussed, the focus is almost invariably on areas such as the overall spending trend, costs per capita and spending in the various segments of the health industry

By LII editorial

The alarming rate at which health care costs are rising is a worldwide problem. However, costs are spread extremely unevenly across the population, reveals a new study based on US data, which points to chronic diseases related to the dramatic rise in obesity levels as major driver of rising health care costs.

 

Chart showing US HEALTH CARE SPENDING: Mean expenditure per person, from low to high spending in 2008When statistics about the cost of health care are discussed, the focus is almost invariably on areas such as the overall spending trend, costs per capita and spending in the various segments of the health industry. But data covering which consumers actually represent the biggest cost to health insurers and state health schemes is seldom seen.

This shortcoming has been remedied by a study published by the US National Institute for Health Care Management (NIHCM). While the findings of the study are limited to the US, in broad terms they are, in all probability, applicable in varying degrees in many other developed economies.

It comes as no surprise that the NIHCM’s findings reveal that allocation of the US annual health care bill of over $2.5trn is not evenly spread across the population. However, what is of surprise is the huge variation in health care costs incurred across the population.

For its study, the NIHCM used data from the 2008 US Department of Health and Human Service’s Medical Expenditure Panel Survey (MEPS) of the civilian non-institutionalised population (CNIP). The CNIP consists of persons 16 years and older who are not inmates of institutions (for example, prisons and homes for the aged) and who are not on active duty in the armed forces.

 

Skewed to the big spenders

In its study the NIHCM found the vast amount of health care spending in the CNIP segment is concentrated in a very small group. Specifically, 63.6% of all spending was incurred by the 10% of the CNIP with the highest spending.

In an exponential rise is spending, the top 5% of the CNIP accounted for 47.5% of all spending, and the top 1% of the CNIP was responsible for 20.2% of spending. The mean spending of the top 1% was a massive $76,476 per person.

At the other end of the spending scale, 15.6% of the CNIP incurred no health care costs at all in 2008, while the half of the population with the lowest spending accounted for a mere 3.1% of all expenditure. The mean spending of the lower half of spenders was a mere $233.

As would be expected older people make up a much larger proportion of the high spending groups, while those in the lower spending groups tend to be younger, on average. For example, among the top 1% of spenders, 65.1% were aged 55 or over in 2008.

 

Obesity makes itself felt

The NIHCM noted that, while the highly skewed distribution of spending has been very persistent over time, the proportion of expenditure accounted for by the highest spending groups has declined to an extent over the past two decades.

For example, spending by the top 5% of spenders declined from 56% of total spending in 1987 to 48% in 2008.

On this change, the NIHCM says: “This flattening of the spending distribution is consistent with the well-documented increase in population risk factors – most notably, obesity – and a concomitant increase in treated disease prevalence for chronic conditions that are clinically linked to these risk factors, such as hypertension, diabetes and hyperlipidemia [high cholesterol levels].”

According to the MEPS, more than 34% of adults in the US were obese in 2008 with medical costs related to obesity in that year totalling $147bn.

The NIHCM emphasises that chronic conditions are also a likely reason why some people have high spending over an extended period, particularly when multiple chronic conditions are present.

According to the Agency for Healthcare Research and Quality, more than a quarter of all Americans – and two out of three older Americans – have multiple chronic conditions and treatment for these individuals accounts for two thirds of the country’s health care spending.

 

Big spenders stay big spenders

Continuing its observations on the ongoing impact of chronic diseases, the NIHCM notes that 18% of people who were in the top 1% spending category in 2007 remained in the top-spending category in 2008.

For the top 5% and top 10% spending categories, the comparable retention figures were 31% and 43%, respectively. Among those in the top 30% of spending there was a nearly two-thirds retention from 2007 to 2008.

Providing a parallel with the US, the UK’s Department of Health (DoH) notes the latest Health Survey for England data show nearly one in four adults, and over 1 in 10 children aged 2 to 10, are obese. Extrapolating the trend, by 2050, 60% of men, 50% of women and 25% of children in the UK will be obese if no action is taken.

According to the DoH, the annual direct cost only of obesity to the country’s National Health Service is currently £4.2bn ($6.65bn).

Summing up its findings, the NIHCM identifies the two key drivers of rising health care costs in the US.

The first is technological change. The second is the increasing burden from chronic diseases, particularly those related to burgeoning obesity rates.

“Until we are successful in tackling the key underlying causes of medical spending inflation, we will continue to face rising private health care premiums and rising national spending for health care,” the NIHCM concludes.

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