High spenders and meteors

Insurance is good when one gets hit by a meteor.

The Health Care Cost Institute (HCCI) team uses their impressive data resources to make the point that a lot of people are hit by a meteor every year:

 

Roughly 40% of the Top 5% of the health care spending distribution in their data set showed up as part of the Top 5% in both 2014 and 2015.  Here the optimization problem for health insurance is not the premium but a constrained minimization problem of total costs which is premiums plus out of pocket maximum spending.

The more interesting and insurancy part of the graph is the 60% of the high spenders in 2014 drop out of the Top 5% the following year and they are replaced.  Their following year claims costs are not particularly high ($4,942).  The people who replace them have slightly lower but similar claims costs in 2014 before getting hit by a medical meteor in 2015.

That is the value of insurance for most people.  Meteors will hit.






17 replies
  1. 1
    dr. bloor says:

    Sadly, they keep missing the White House.

  2. 2
    oldster says:

    How much of this turnover is due to the fact that people become top-spenders in their last year of life?

    So each year, a new batch of people die, and use up a lot of money in the process of dying.

    But those individuals usually don’t die again the next year, so you get turnover.

  3. 3
    daveNYC says:

    @oldster: There’s probably some of that, health problems do have a strong correlation with death and whatnot. The study was restricted to under-65 year olds though, so not all of it is end of life stuff.

  4. 4
    Mart says:

    @oldster: Last year my wife was hit by a meteor, breast cancer. Age 59. The “good” news was caught very early and her first blood test post treatment is clean. Prior to that we had barely touched our high deductible for about eight years since the kids got off the plan.

  5. 5
    Central Planning says:

    @oldster: @daveNYC: I think things that generally don’t happen every year (per individual) like pregnancy, carpal tunnel surgery, or shoulder repair help explain that too.

  6. 6
    oldster says:

    Mart–I’m really glad to hear that your wife’s treatment worked. That’s a blessing.

    How many pregnancies, carpal tunnel surgeries, or shoulder repairs cost $47k in one year? I had assumed that events like that do not break the top 5% tier. But I don’t know much about this field.

    I also had not realized that the study excluded 65 and up, so that makes my initial point about spending in the final year of life less relevant.

  7. 7
    Barbara says:

    End of life care almost certainly skews this kind of data. In the Medicare program, a huge percentage of the outlays for any given person occurs in the last year of that person’s life. Those expenditures are not repeated in the next year. Assessing end of life care is an important issue all by itself, but it’s not easy. Basically, if you KNOW that someone is dying, it’s relatively easy to justify pulling back from extreme measures, but it’s not otherwise.

    But really, you would need to drill down further to understand the “burden” to the system of chronic illness that is separate from end of life care.

  8. 8
    Raoul says:

    Ten years ago as a decently healthy early 40s guy I had arthroscopic knee surgery. Outpatient, not really that expensive, but with consult, PT beforehand, extra visit for preclearance, aftercare, etc, not cheap by any means.
    The following year I was back to probably $1,200 of mostly out-of-pocket annual care. That’s sort of the point of insurance, to smooth out the high cost years, right?
    And it has meant that I’ve been able to walk, bike, and snowboard much more comfortably (and even go off antidepressants, because chronic pain was – whocouldaknowed – depressing). So I’d bet I’m actually healthier now than I would have been but for that one expensive year.

  9. 9
    Jack the Second says:

    @oldster: $47k was the median for “consistent top spenders” in 2015; the median for “one-time top spenders” was $35k in 2015. $35k does sound like an order of magnitude too large for pregnancy, googling recent figures.

    My mother had a big year a year or two ago, she had an ablation done on her heart to correct A-fib; that came out to about $100k.

  10. 10
    Raoul says:

    @oldster: My father in law Bob had a heart attack 11 years ago. Just the few days in the ICU must have cost a bundle. The National Bureau of Economic Research says “the average cost to traditional health insurers for the first 90 days following a heart attack is $38,501.”
    Lots of folks go on for many years at probably the $5K annual spend after that without a second heart attack. And yes, Bob is still going, though recently his overall health is declining in his mid-70s, sadly.

  11. 11
    Barbara says:

    @Raoul: Seriously, you have to look at this metric on a disease by disease basis. Someone who has hemophilia or ESRD runs hundreds of thousands of dollars per year. The “average” here just means very little.

  12. 12
    Seanly says:

    @dr. bloor:
    :) LOL

    My household got hit by meteors in both 2010 and 2014. Not fun. We thought the 2010 incident was bad, but then a world-shatterer hit just 4 years later. To stay with the metaphor, just now feeling like we’re finishing the rebuilding of our once-thriving civilization.

  13. 13
    hitchhiker says:

    Mr hitchhiker broke his neck at age 46, in 2001.

    That’s a meteor, folks. The insurance we had was considered very good, and they did prevent complete bankruptcy. But we were still out of pocket about $100k during the first year, without counting the home modifications necessary for him to live in our house. I still have the receipts.

    This is why I roll my eyes when people suggest that “catastrophic insurance” is going to be good enough. They don’t know from catastrophe!

  14. 14
    dr. luba says:

    @oldster: I had kidney surgery last year–robotic, to remove a small cancerous cyst. 51K IIRC. And that may not have included anesthesia–they apparently bill separately.

    And the year before I had colonoscopy, hysteroscopy and cholecystectomy, as well at ultrasound, CT and MRI, as well as three months of physical therapy…….

    Had never had anything besides minor hand surgeries before, and I’m 59.

    Sometimes it’s not meteors, it’s meteor showers……

  15. 15
    wmd says:

    I was hit by a meteor last year. Low out of pocket max and I’ve not actually checked total payouts for my cancer diagnosis and treatment, but I suspect it’s on the order of $200K (I paid my $2400 OOM and stopped caring about cost). This year followup visits are likely to be on the order of $12K. No longer in top 5%,

  16. 16
    Mart says:

    @dr. luba:

    And that may not have included anesthesia–they apparently bill separately.

    They did with my wife; and of course the fckers were out of the fcking Aetna/hospital network. Not that it is that much more money, but the fcking principle. They could at least let you know as part of the surgery prep instructions that the anesthesia bill is going to piss you off.

  17. 17
    Mart says:

    @oldster:

    How many pregnancies, carpal tunnel surgeries, or shoulder repairs cost $47k in one year?

    25 and 11 month old daughter living on her own but on my policy (thank you Obummercare) had her tonsils removed. The bill came near $60K. I called as I thought there was some kind of mistake…

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