NCPA Study: Why Do Some States Spend More on Health Care?

Dallas, TX (March 26, 2013) – Health care spending in three states – Maine, West Virginia and Mississippi – accounts for one out of every five dollars of state GDP. Conversely, Wyoming spends less one in ten, according to a new study by the National Center for Policy Analysis (NCPA).

 “If every state could be like Wyoming, which they cannot, the country as a whole would be spending less of its income on health care than about three-fourths of the other developed countries,” said former Medicare Trustee and NCPA Senior Fellow Thomas R. Saving.

NCPA President John C. Goodman and Saving authored a new commentary on the study at the Health Affairs Blog.

Surprisingly, The State of Health Care Spending finds that Medicare and Medicaid exhibit much more variation than the private sector. For example, over a 40-year period:

  • The variation in Medicaid spending, as a percent of state domestic product, was from two to three times greater than the variation in private sector spending.
  • The variation in Medicare spending was from one and a half to two times greater that the variation in private sector spending.

“Private sector spending is much more similar across the 50 states than government spending,” said Saving, who is also Director of the Private Enterprise Research Center at Texas A-&-M University. “A primary driver of differences in how much of state income is spent on health care is the public sector,” he said.

Overall, the study found that:

  • Medicare spending ranges from $11,903 per enrollee in New Jersey to $7,576 in Arizona.
  • Medicaid spending ranges from $11,569 per enrollee in Alaska to $4,569 in California.

The two programs operate very differently from state to state. For example, the study finds that:

  • While 43 percent of beneficiaries are in Medicare Advantage plans (mainly managed care) in Minnesota, the figure is less than 10 percent in Alaska, Delaware, Vermont, Wyoming and New Hampshire.
  • While South Carolina and Tennessee have 100 percent of their Medicaid enrollees in managed care programs; Alaska, New Hampshire and Wyoming have no Medicaid managed care enrollment.

Another issue raised by the study is the tendency on the part of some policy makers to generalize from Medicare data. Researchers at Dartmouth, for example, find widespread variation in per capita Medicare across the country. Atul Gwande made a similar observation in a New Yorker article, comparing high Medicare spending in McAllen, Texas and with lower Medicare spending in El Paso. In both cases, commentators used these facts to infer that we could save an enormous amount of money if doctors in the high-spending areas practiced medicine the same way as doctors in the low-spending areas.

The NCPA study, however, suggests that different types of spending may substitute for each other. “In states where there are more uninsured, and therefore more unpaid bills, Medicare spending per enrollee is higher,” said Saving.

In some states where Medicare spending is high, private sector spending is low and vice versa. For example, the study finds that:

  • Texas is fifth from the top in Medicare spending per enrollee.
  • But the state is fourth from the bottom in per capita private health care spending.

On the other hand:

  • Wyoming is seventh from the bottom in Medicare spending per enrollee.
  • But the state is twelfth from the top in private sector spending per capita.

As for McAllen Texas, part of the reason for its high Medicare spending is that it has almost four times the national average in “disproportionate share” spending (to compensate for a high volume of uninsured and Medicaid patients). In the private sector, McAllen actually spends less per person than El Paso does.

“If we want the high spending states to emulate the low spending states, the place to start is with the public sector programs, not the way the private sector practices medicine,” said Saving.

The State of Health Care Spending --

Health Affairs Blog: