NCPA - National Center for Policy Analysis

The State of Health Care Spending

March 26, 2013

Why does the United States spend so much more of its national income on health care than other countries? As of 2010, the health care sector comprised 17 percent of the U.S. economy, which is a significantly greater share than all other developed countries. This has been a topic of investigation and debate within the health policy community for some time, with many concluding that the fault lies mainly in the way private sector medicine is practiced. In a new study, economists Jeremy Nighohossian, Andrew Rettenmaier and Zijun Wang of the Private Enterprise Research Center at Texas A&M University, asked a similar question about states within the United States, after finding that some states spend more than twice as much on health care as other states, as a percent of state income.

The study 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 gross domestic product (GDP), 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 than the variation in private sector spending.

The study reports that 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 than 9 percent.

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.

Source: Jeremy Nighohossian, Andrew J. Rettenmaier and Zijun Wang, "The State of Health Care Spending," National Center for Policy Analysis, March 26, 2013.


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