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JAMA Forum Archive, 2012-2019: Health policy commentary from leaders in the field
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Chronic Illness Spells Financial Burden, Even With Insurance

The highly skewed distribution of health spending is a phenomenon well known to health economists. About 5% of the population accounts for half of spending and the most costly 1% accounts for one-fifth of it. Less widely known is the extent to which high spending persists over time, despite the important health policy and financing consequences that follow from it.

Austin B. Frakt, PhD

(Image: Doug Levy)

For many of those costly patients, their health coverage may provide inadequate protection against the burden of persistent and substantial medical expenses.

Two groups of costly patients engage the health system differently. The first group includes patients who have a condition that can be cured (or substantially improved) with a therapy (such as arthritic joints surgically treated with joint replacement), so their high spending is usually transient. The second group includes patients who require ongoing management to address chronic conditions (sometimes multiple conditions) or disabilities. They are at greater risk of emergency department use and hospitalization, so their odds of persistent, high spending are greater.

Same Health Plan, Different Effects

Because these 2 groups engage the health system differently, the same health insurance plan affects them differently. A patient with a transient condition might spend through her deductible in 1 year, but not the next; a patient with multiple chronic conditions may do so year after year. Consequently, a patient with a transient condition who has a high deductible could, in principle, save up for the high costs of treating a one-time health problem. A patient with more complex and chronic issues might deplete her savings over time and may have little opportunity to recover financially.

How likely patients are to exhaust their financial resources depends on their incomes, deductibles and other cost sharing, and the extent to which high health care spending persists over time. A few studies have examined such persistence. An analysis extending from 1987 through 1995 of high-cost Medicare beneficiaries (those with spending in the top 5% of the annual spending distribution) found that 15% of beneficiaries had high costs the next year and 9% had high costs 2 years later.

somewhat more recent analysis found greater persistence. Among high-cost Medicare beneficiaries in 2001, those with high costs 1 year later was 24%; 2 years later, 16%; and 3 years later, 12%. Using data through 2010, a working paper published in June found that Medicare beneficiaries in the top quintile of spending in 1 year had almost a 50% chance of being in the top quintile 2 years later.

Although persistence of health spending in the working-age population can and has been examined, most studies are short term (spanning only 2 years) or are somewhat dated (using data from the 1980s and 1990s). For example, an analysis using the Medical Expenditure Panel Survey, which tracks a representative sample of the US noninstitutionalized population for 2 years, found that 34% of high-cost individuals in 2009 also had high costs in 2010. Another study examined a sample of insured workers and adult dependents and found that almost half of those in the top quintile of health care spending in 1994 were in the top quintile 4 years later. A recent study found that so called super-utilizers visiting a Colorado safety net health system—those with several hospital admissions in 1 year—have health spending above $45 000 for at least 3 years in a row.

These findings suggest persistence of high health care spending is substantial, and not just in the Medicare population. A recent study by Richard Hirth, PhD, of the University of Michigan, and colleagues corroborated these findings and added an important new insight: of every 3 high spenders in a given year (in the top 10% of the annual spending distribution), at least 1 will be a high spender in any of the next 5 years. The finding is based on 6 years of health spending data (2003-2008) for a sample of millions of employees and dependents with coverage from more than 100 medium and large employers.

The potential cumulative financial hit to patients with costly chronic illnesses is considerable. Those with high spending in at least 5 of the 6 years examined had average annual expenses around $30 000. That’s well above typical deductible levels for employer-sponsored plans (usually below $2000) or for Affordable Care Act (ACA) plans (usually in the $1500-$4000 range for silver-rated plans). Unsurprisingly, certain chronic conditions—like rheumatologic conditions, renal disease, diabetes, and AIDS—are associated with high, long-term spending persistence.

Patients with transient and treatable illnesses have much lower expenses. Those with high spending in just 1 or 2 of 6 years have average annual expenses around $7500. That’s not pocket change, but it pales in comparison to the expenses that patients with costly chronic illnesses must endure.

Disparate Needs

Some aspects of our health policy discourse reveal a lack of appreciation of the disparate needs of these 2 groups of patients. For example, the ACA requires all new health care plans to provide first-dollar coverage for primary preventive services, which include screenings for chronic and costly diseases. Despite the rhetoric, full insurance for primary prevention does not pay for itself. Moreover, the screenings it covers are of little value for patients who already have a disease that screening tests are intended to detect. But the maintenance care and medications they do need are generally subject to copayments and deductibles. This “skin in the game” (costs the patients must bear) discourages use and, for sicker populations, can lead to higher downstream costs.

New coverage policies and trends—like higher deductibles and lower cost sharing for primary prevention—tend to favor the healthy, perhaps because they are more numerous. Patients with high health care costs, particularly those with chronic conditions, are increasingly left underinsured today. A new Medicare initiative could begin to change that. It would permit Medicare Advantage plans in 7 states to reduce cost sharing for proven, high-value therapies targeted to patients with chronic conditions.

Greater coverage for the specific care that certain chronic conditions require—within Medicare Advantage and across plans for the non-Medicare population as well—could reduce the predictable and substantial financial burden some patients endure. Providing such coverage would accomplish the very thing we expect of health insurance—offering financial protection when we're sick.

About the author: Austin B. Frakt, PhD, is a health economist with the Department of Veterans Affairs and an associate professor at Boston University’s School of Medicine and School of Public Health. He blogs about health economics and policy at The Incidental Economist and tweets at @afrakt. The views expressed in this post are that of the author and do not necessarily reflect the position of the Department of Veterans Affairs or Boston University.
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