Health Care: Who Uses the Money?

Liberals and conservatives agree the rapidly increasing cost of health care is unsustainable in the U.S. Last year the country spent $2.4 trillion, comprising 18 percent of our economy or gross domestic product. Although the rate of increase has tapered off slightly the past two years, the U.S. is still spending twice the rate of inflation for health care.

Who are the people using these health care dollars? Who are the most expensive patients?

The federal Agency for Healthcare Research and Quality (AHRQ) tracks health care expenditures and patient demographics. In 2008-2009, the last years of complete data, 10 percent of patients used 70 percent of all health care dollars. In other words, most of the country’s health care expenses were concentrated in a minority of people.

Although individuals moved in and out of the high-expense group, almost 50 percent remained high-cost users in both 2008 and 2009. Relative to the overall patient population, high-cost users were more likely to be 65 and older, women and people with government-provided health insurance. This is no surprise since older age is associated with more disease, women live longer than men and government-run Medicare is essentially the only health insurance available for seniors.

The AHRQ study provides critical information for government central-planners who are attempting to control health care costs. Most of U.S. health care expenses are concentrated on the elderly and virtually all of our seniors have Medicare as their insurance. Controlling costs comes down to controlling Medicare spending.

The Affordable Care Act (ACA), the new federal health care law, cuts $580 billion out of Medicare. Most of these cuts are on the provider side with decreasing government payments to hospitals, doctors, nursing homes, ambulance services and dialysis units.

The ACA establishes the Independent Payment Advisory Board (IPAB), which will function as a bureaucratic committee that decides who gets care and how much in the Medicare program. The federal law also emphasizes comparative effectiveness research (CER) with the same goal of determining “best practices” for doctors.

In reality, the IPAB and CER will use cost as the main determinant for diagnostic and treatment decisions. Hospitals and doctors will only be paid for care that meets pre-determined government guidelines. Bureaucratic central-planners will then ration health care by deciding what medical treatments are allowed and what providers get paid.

The new federal health care law adds 20 million new participants into Medicaid. The law also adds millions of people to the new state insurance exchanges, where individuals and families will receive taxpayer subsidies to purchase health insurance. In all likelihood, IPAB-type programs will expand beyond Medicare to these new government-controlled health insurance plans, all in an effort to control costs.

It is no surprise that most of the country’s health care spending is concentrated on 10 percent of the population. Most of the money spent by auto and home insurance companies is concentrated on a small percent of policy holders as well. The difference, of course, is that home and auto policy holders control their own dollars and have a broad market of insurance plans to choose from.

The tragedy for our patients trapped in the existing Medicare and Medicaid programs is that, although they technically have insurance, they do not have control of their own healthcare dollars. As long as the government controls the money and spending, patients will be subject to centralized bureaucratic decision-making and rationing.

All patients should be able to control their own health care dollars, have access to a true free market in insurance and make their own health care choices. The majority of health care money would still be spent on the sickest people, but it would be us, not distant government officials, who would be making the key decisions about how we receive care.