Ezekiel Emanuel last month pointed out that if we want to rein in health expenditures, “real savings require changing the way we care for these chronically ill patients.” But to better understand the determinants of health spending, it is important to distinguish spending on chronic health conditions from spending on patients with chronic health conditions. The two are not the same. Admittedly, 9 of every 10 dollars in adult health spending can be attributed to those who have at least one chronic condition (right side of figure 2.5a).

Also, this share of health spending is disproportionate, insofar as only 60 percent of civilian adults not living in institutions have at least one chronic condition. This disproportionate share is observable across all ages, as the percentage with at least one chronic condition ranges from a low of 36 percent of young adults to approximately 92 percent of the elderly. Consequently, those with at least one chronic condition account for more than 60 percent of total personal healthcare spending among young adults and 99 percent among the elderly.

However, only half of adult health spending pays for actual medical services related to chronic conditions. Thus, while wrestling to contain such chronic care spending through better prevention and more efficient treatment certainly must be part of any strategy to get more value for money in healthcare, it is only half the battle. (Note that these figures only relate to the civilian non-institutionalized population, i.e., those outside of nursing homes or long-term mental facilities; all the percentages shown would be higher were those in institutions included.) Even people with chronic conditions require medical services for acute care needs entirely unrelated to their diabetes, cancer, asthma, or other similar conditions expected to last at least a year.

Moreover, this 50 percentage average masks a lot of variation across age groups. For adults younger than age 35, just less than 30 percent of spending is specifically attributable to treating chronic conditions (left side of figure 2.5a). Thus, if they are serious about cost containment, employers with younger workers should be focusing much more attention on the components of spending that may have nothing to do with better chronic disease management. Conversely, among the elderly, the share of personal healthcare expenditures having to do with chronic conditions is approximately double the level seen in young adults. Chronic conditions are a major reason that health expenditures increase so dramatically by age. Among adults having no chronic conditions, annual health expenses in 2005 averaged less than $1,000 per person, with elderly individuals experiencing only slightly higher spending than their adult counterparts in the lowest age category. Thus, for Medicare, placing much greater emphasis on chronic diseases makes a great deal of sense. By the same token, steps taken to reduce the prevalence of chronic conditions before age 65 will unquestionably reduce the average annual amount spent per person on Medicare. So chronic disease costs assuredly matter, but we cannot and should not ignore the equally sizable share of health spending unrelated to chronic care.

Christopher J. Conover is a research scholar at Duke University’s Center for Health Policy and Inequalities Research and an adjunct scholar at AEI. The charts shown are from his new book American Health Economy Illustrated, to be released in January 2012 by AEI Press. See PowerPoint version of Figure 2.5a, and Excel spreadsheet on health expenditures for chronic conditions by age in 2005 for data, sources and methods.