Half of America’s Healthcare Spending Goes to Sickest 5%

In 2016, Americans spent nearly as much on healthcare as Germans spent on everything. At $3.3 trillion dollars, America’s healthcare spending is almost as much as the entire gross domestic product (GDP) of the world’s fourth largest economy.  

Given that America’s healthcare spending would be the world’s fifth largest economy on its own, it is not difficult to figure out that America spends more on healthcare for its people than any other country. On a per capita basis, the U.S. spent $10,348 in 2016, 31% more than the runner up Switzerland and more than twice that of Canada, Australia and France.   

America’s Healthcare Spending

However, half of America’s spending is concentrated on the sickest 5% of Americans, almost 16 million people. For this group the per capita spending is $104,515.

If you spread the other half of healthcare spend ($1.63 trillion) over the 95% of healthier Americans, the per capita healthcare spending is $5,392, which would put US spending just ahead of the Netherlands at number 8.  Note that the per capita spending for the sickest 5% is almost 20x that of the healthier 95%.  

Historically, pricing has been the primary driver of healthcare spending. As the Baby Boom Generation ages, usage has begun driving healthcare spending increases.

Despite the rhetoric about greedy corporations increasing prices and healthcare CEOs diving in to piles of money like Scrooge McDuck, much of America’s healthcare spend keeps very sick people alive.

Who are the Sickest Five Percent?

Typically, people receive the largest amount of healthcare in their lives in the last days or weeks of their life. This is reflected when we look at what each age cohort spends on healthcare.

The sickest five percent skews older. Seventy-nine percent are older than 45 years of age.

People between the ages of 65 to 84 spend about 3.6x more than the cohort between 18 and 44. 

The government pays for most of our most sick. Medicare paid 37% of the medical bills for the sickest five percent, while Medicaid pays for just over 10%. Private insurance pays for 38%. Just 5.4% of the sickest Americans self pay. In contrast, 28.6% of the healthiest half of Americans self pay.

End of Life Healthcare Spending

Some people say that this spending on end of life care is compassionate in that we as a society are choosing to extend life for our people as long as we can.

Others say that this extreme end of life care is the opposite of compassionate. The oldest and most ill in our society spend their last weeks in a chaotic hospital environment being administered powerful drugs by strangers. Many say that their last days would be better spent in a hospice environment with the goal of making their last days most pleasant, and giving them a chance to say goodbye to family.

Regardless of how of one’s perspective on the morality of either path of end of life care, hospice is certainly less expensive.

What the Politicians Are Doing

Understandably, telling families they should just let grandma die in peace rather than do everything they can to extend her life is not a popular political position.

Several members of Congress have introduced legislation regarding end of life care. However, none talk as freely about it as those who no longer have the pressures of getting re-elected.

Former Colorado Governor Dick Lamm, an octogenarian himself, told the Denver Post last year, “When I look at the literature, and there are such things as $93,000 prostate operations at some stage of prostate cancer that might give two extra months of life, it is outrageous.” Lamm’s plain talk may have inspired his run as a third party candidate for President in 1996. 

America may need to have a plain talk conversation like this. Eight of ten people who died in the US in 2014 were insured by Medicare.  The most recent projections by the U.S. Treasury say that Medicare will be insolvent in 2026.

Healthcare resources are finite. At $1.237 trillion in 2016, Medicare and Medicaid spending combine to be the primary driver behind the massive increases to the national debt in the last decade.

As Medicare comes to the end of its life, Americans may be forced to have a serious conversation about end of life spending on health care.