Expensive Patients, Reinsurance, and the Future of Health Care Reform

In 2017, Americans spent over $3.4 trillion—nearly 18% of gross domestic product—on health care. This spending is unevenly distributed: Almost a quarter is spent on the costliest 1% of patients, and almost half on the costliest 5%. Most of these patients soon return to a lower percentile, but many continue to incur health care costs in the top percentiles year after year. This Article focuses on the challenges that persistently expensive patients present for health law and policy, and how fairly dividing their medical costs among payers illuminates fundamental normative choices about the design and reform of health insurance. In doing so, this Article draws on bioethical and health policy analyses of the fair distribution of medical costs, and examines how legal doctrine shapes health systems’ options for responding to expensive patients. Part I of this Article discusses two real-world examples of expensive patients and the debate surrounding them, including the case of an Iowa teenager with hemophilia whose treatments cost more than $10 million per year. Part II then examines the normative question of how the costs of treating expensive patients’ medical conditions should be shared and identifies three different dimensions of sharing: (1) scope, from narrow (plan members only) to broad (all of society); (2) boundedness, whether there are limits on the costs others can be asked to bear; and (3) progressivity, whether wealthier individuals are asked to bear more costs (similar to progressivity in tax). Part III then considers how health care reform choices could advance or hamper the adoption of broad, bounded, progressive sharing, with a focus on recent state-level reinsurance programs that legal scholarship has not yet analyzed in depth. This Article contributes to the literature on health care reform in three interlocking ways. First, it develops a novel proposal for fairly sharing the cost of expensive patients’ care that could usefully inform state- and federal-level policy discussions. Second, it provides a normative, rather than purely political or economic, analysis of existing and proposed options for sharing expensive patients’ costs. Third, it bridges the disconnected literature on reinsurance, limit setting, and health care financing, identifying how proposals in these different areas intersect