Surprising Variations in Health Care Spending and Utilization

August 22, 2011

If you were to guess where people spend the most money on health care in the U.S. where would you pick? How about a big city like New York or Los Angeles? If you did, the results of a recent study by Thomson Reuters might surprise you.

If you went against your instincts and pick Anderson, IN you’d be right. People there with employer-provided insurance spent $7,231 on health care compared to Ogden-Clearfield, Utah where they spent only $2,623. That’s a pretty big variation compared to the national average of $4,104. Here are the ten highest and lowest spending MSAs according to the study.

Ten Highest Spending MSAs:

  • Anderson, IN $7,231
  • Punta Gorda, FL $7,168
  • Racine, WI $6,528
  • Naples-Marco Island, FL $6,312
  • Ocean City, NJ $6,128
  • Barnstable Town, MA $6,123
  • Flint, MI $6,061
  • Lake Havasu City-Kingman, AZ $5,977
  • Ocala, FL $5,976
  • Carson City, NV $5,931

Ten Lowest Spending MSAs:

  • Ogden-Clearfield, UT $2,623
  • Dubuque, IA $2,719
  • Fayetteville-Springdale-Rogers, AR-MO $2,762
  • Fort Smith, AR-OK $2,916
  • Laredo, TX $2,919
  • Amarillo, TX $2,942
  • McAllen-Edinburg-Mission, TX $2,950
  • Salt Lake City, UT $2,979
  • Fargo, ND-MN $2,996
  • Sioux City, IA-NE-SD $3,029

The Thomson Reuters study, titled Geographic Variation in Spending and Utilization Among the Commercially Insured utilized the Thomson Reuters MarketScan Research Databases to “examine variation in spending for enrollees with employer-sponsored health insurance (private insurance).”

Their research focused on three age groups

  • Children (age 0-17 years)
  • Adults (age 18-64 years), and
  • Seniors (age 65 years and over)

The study analyzed 382 metropolitan statistical areas (MSAs) with at least 100 enrollees in each of the age categories. It looked at geographic variation across MSAs and age groups for spending on
Medical care

  • Inpatient medical care
  • Outpatient medical care
  • Outpatient prescription drug, and
  • Total spending

Not surprisingly, the study found that healthcare utilization and spending varied across geographic regions in the United States.

The general consensus seems to be that variations cannot be fully explained by age, gender and health status. Perhaps that is why adjustments for “demographic characteristics and health status” were not made in this study.

However, the data did show that within each MSA medical spending varied by age, which had an impact on overall spending and relative ranking compared to other MSAs. For instance, Medicare spending in Anderson, IN was lower than it was in Punta Gorda, FL. But total spending in Anderson was higher overall because more was spent on children and adults. So, while an MSA might have higher overall spending, that does not mean spending is higher for all age categories.

The study pointed out that current beliefs about the causes for geographic variation may need revising due the observed patterns for Medicare and the commercially insured. The study cites the following factors that seem to influence geographic variation:

  • Regional differences in practice, training and financial incentives, as well as the availability of physicians and specialists.
  • Basic health, health behaviors, and healthcare preferences
  • Market structure, pricing and competition
  • Fraud and abuse, such as fraudulent billing schemes.

The study concludes that more research needs to be done to fully understand the reasons for the variation. Future health care policy changes will need to take into account these causes if they are to be effective.

The Thomson Reuters study offers the following five main findings:

  • There was significant geographic variation in healthcare spending by age
  • Location of the highest & lowest spending MSAs varied considerably by age group, and the type of spending was different from past results for Medicare.
  • Not including seniors with supplemental insurance, variation in drug spending was greater than variation in medical care spending
  • There was a strong positive correlation between inpatient and outpatient spending, and a weak correlation between medical and outpatient drug spending.
  • There was a weak correlation on medical spending between age groups, but a stronger correlation with drug spending.

In conclusion, the study found that the variation in spending by commercially-insured populations is significant, but the spending for seniors differed from previous results for Medicare. While the differences may be due to causes such as market structure, pricing and competition, more research is needed to determine if these variations would still be found after adjusting for demographic characteristics and health status.

If you would like to read the Thomson Reuters whitepaper you can find it here.

Additional Reading: The Cost Conundrum, by The New Yorker.

Visit Extend Health — the nation’s largest private Medicare exchange.

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