In the days leading up to the House vote to repeal Obamacare last month, House Speaker Paul Ryan made a curious statement during his March 9 Powerpoint presentation to the news media. He said that the problem with Obamacare is that it “makes the people who are healthy pay for the people who are sick.”
Technically, this is correct and probably obvious to most people. It applies, however, not just to Obamacare but any kind of insurance — the purpose of which is to pool risk across large groups of people: when someone covered by life insurance dies, that claim is paid for with the premiums of those who did not die; auto insurance claims after a serious accident are paid for by those who did not have serious accidents. Health insurance works on the same principle and any attempt to implement health care reform requires an understanding of basic facts — most people are in good health. And while most spend little out-of- pocket for care, they still receive the care they need. As a result, many incorrectly believe that they are not at future risk and they may not want to pay for coverage.
Ryan was clearly trying to appeal to these people with his recent statement, but it is widely understood by most Republicans in Congress that insurance companies will not be able to pay for the costs of caring for the highest users without revenues tied to premiums paid by those who spend the least on healthcare. The conservative think tank, the Heritage Foundation, developed this idea. In the past, Newt Gingrich and Mitt Romney actively advocated for this. It was only after Democrats incorporated it into the Affordable Care Act that strong and consistent Republican opposition to the idea emerged.
I, along with Zhengyi Fang, recently published an article in Health Affairs updating previous work demonstrating that only a small segment of Americans spend a lot on healthcare.
In a given year, most people will get all the care they need by spending only moderately on healthcare. This doesn’t suggest that they should not have health care coverage to protect them when they do need healthcare nor can they be excluded from any plan that expects to provide coverage for those with high need. If the public becomes convinced that those with good health can be exempted from any coverage proposal, and prefer to opt out, it will eventually impact those who need care the most, as well as those of us who incorrectly assumes that we will always remain in good health.
The numbers are compelling. The 1% of Americans who spend the most incur an average cost of over $107,000 and collectively account for about 25% of the nation’s total healthcare expenditures. When we look at the 5% of Americans who spend the most they incur an average of over $47,000 in expenditures and account for more than half of the nation’s total spending.
But most Americans spend relatively little on health care. Collectively, the poorest half of Americans account for only 3% of health care costs. Neither Obamacare nor any other health care reforms have had any impact on this pattern. When we looked at data from 21 Federally sponsored national expenditure surveys going back to 1977, those who spend the least on healthcare consistently account for 3% of total expenditures.
What does the low spending half of the population look like? They tend to be younger and they believe they are in good health; 95% rate their health as ‘good’ or ‘excellent.’ While they are more likely to be uninsured than higher spenders, most are covered. About 16% lacked coverage throughout 2014, the first year of most of the Affordable Care Act provisions — a substantial improvement from the 21% lacking continuous coverage the year before.
Despite spending less on health care, this group reported either that they did not get the care they needed or that their care had to be delayed. Less than 7% noted such obstacles. Conversely, about 21% of the highest spenders (those in the top 1% ) had difficulty getting timely care. What this means is that those who use the most services are the same group of people likely to need even more care.
Not surprisingly, those who spend less had little out of pocket costs, spending an average of $75 in 2014 which, in adjusted dollars, is less than what people spent in 1977. Almost half of the low spenders and 27% of all Americans had no out of pocket costs for health care at all.
Efforts to exempt this group from mandated coverage might be politically appealing but excluding them from insurance pools will make insurance coverage prohibitively expensive for those who need it the most. Although the ACA extended coverage to millions of Americans about 28 million remained uninsured in 2015. If more are allowed to decline coverage the system will no longer be able to help those who have benefited.
Marc Berk is a contributing editor at Health Affairs.
