Questioning the 80/20 rule for health care
Determining the impact for population health today
The 80/20 rule in health care underlies much of the common thinking about population health. Many value-based strategies about health care costs or utilization use this rule to describe the distribution of health care spending. Is the 80/20 rule accurate today? We analyzed recent data to find out.
Questioning the 80/20 rule for health care
Fundamentally, the 80/20 rule says that 80 percent of health care dollars are spent on 20 percent of the population. Conversely, the remaining 20 percent of the dollars are spent on 80 percent of the population.
This 80/20 rule is shorthand for many assumptions about health care including:
- Most people in any population don't spend very much on health care in a given year
- This 80/20 rule applies to all populations, whether Medicare, commercial insurance, or Medicaid
- This 80/20 distribution is true year after year, even if the individuals in the 20 percent are different each year
- It makes sense to design and implement health care interventions focused on the most expensive individuals comprising the top 20 percent
New thinking in a value-based environment
Health care is in a period of increasingly rapid change. Some of the earliest sources of the 80/20 rule were published six to 12 years ago. We're now seeing new models of value-based care delivery like ACOs, new provider-payor collaborations, and newly insured populations under Medicaid expansion and Affordable Care Act commercial insurance coverage.
In addition, new specialty drugs are driving pharmacy spending higher, and changes like high-deductible health plans are shifting costs to consumers.
Could these factors be changing the distribution of spending? Does current data reinforce—or refute—the 80/20 rule?
Health care’s 80/20 rule: What’s changed
Our analysis of recent medical claims in commercial insurance populations found that the distribution for medical spending (without pharmacy) was actually 85/20. Health care spending is extremely concentrated at the top in the privately insured population with the top 1 percent consuming 30-33 percent. Adding pharmacy spending to medical shifted the concentration only modestly to 82/20.
Looking at Medicare Part A and B medical spending only (no Part D pharmacy), the distribution is 81/20, closer to the 80/20 rule. However, less than 0.5 percent of the population (or one in 200) expends 10 percent of the dollars.
Our take: We can focus on the top 20 percent of spending by targeting 1.3 percent of the individuals in Medicare and just 0.4 percent of the individuals in commercial insurance—if their past spending predicts current or future needs.
Determine the path to value-based care and population health
From providers to health care plans, from policy makers to employers, health care stakeholders need to understand the predictors and drivers of high spending to focus health support resources to engage patients in value-based care.
The implications to population health strategies across the health care landscape fall under these key themes:
- Understanding the costs and utilization of the population as a whole
- Learning to predict which individuals can benefit from care support interventions
- Getting the most value from expensive technology investments and treatments
Deloitte's population health expertise is a good place to start to help your organization to improve care and manage costs.
