Health Care Reform

In 2002, the top 5 percent of the population accounted for 49 percent of health care expenditures. Of people ranked in the top 5 percent of the health care expenditure distribution, 34 percent retained this ranking with respect to their 2003 health care expenditures. Similarly, the top 10 percent of the population accounted for 64 percent of overall health care expenditures in 2002, and 42 percent of this subgroup retained the top decile ranking with respect to their 2003 health care expenditures.

Over longer periods of time, a considerable leveling of expenses takes place. In a study of Medicare enrollees, researchers found that although the top 1 percent of spenders accounted for 20 percent of expenses in a particular year, the top 1 percent of spenders over a 16-year period accounted for only 7 percent of expenses.8 The researchers concluded that there is a substantial leveling of expenses across a population when looking over several years or more compared to just a single year.

An acute episode of pneumonia or a motor vehicle accident might lead to an expensive hospitalization for an otherwise healthy person, who might be in the top 1 percent for just that year but have few expenses in subsequent years. Similarly, many people have chronic conditions, such as diabetes and asthma, which are fairly expensive to treat on an ongoing basis for the rest of their lives, but in most years will not put them at the very top of health care spenders. However, each year some of those with chronic conditions will have acute episodes or complications requiring a hospitalization or other more expensive treatment.

The Medicare study just discussed8 did not control for factors such as the overall increase in the quantity and intensity of services over time. Another study controlled for these factors in examining how the distribution of expenses changes over the major phases of an average person's lifetime.9 The study used insurance company data on 3.75 million enrollees...