NCPA - National Center for Policy Analysis


July 24, 2008

There are wide regional variations in Medicare spending which have persisted through time.  If Medicare reimbursements could be constrained to the levels existing in the lower cost areas, the program's costs could be reduced significantly, say Amy Hopson, a research associate, and Andrew J. Rettenmaier, executive associate director of the Private Enterprise Research Center at Texas A&M University.

According to Hopson and Rettenmaier:

  • County-level Medicare spending is high states like New Jersey, with 95 percent of its counties in the top fifth of spending.
  • Maryland, Louisiana, Massachusetts and Texas are also high cost areas, with all having more than half of their counties in the top fifth of spending.
  • In contrast, average county-level Medicare spending is low in Vermont, Idaho, New Mexico, South Dakota, Oregon and Iowa, all with more than half of their counties in the bottom fifth of spending.

But why do Medicare costs vary so dramatically from area to area?   

  • Higher Social Security benefits as well as more Supplemental Security Income imply higher spending.
  • Higher percentages of Hispanics and Blacks are related to higher average Medicare spending in the counties.
  • Higher percentages of female retirees in a county are positively related to spending, while higher percentages over age 85 are negatively related.
  • Higher health care sector wages are associated with lower Medicare spending, but managed care penetration has a positive effect on spending.
  • The most important factors are the health risks among a county's Medicare beneficiaries which are (as expected) associated with higher spending.

The observable county characteristics along with a measure of the health care risks explains about 40 percent of the variation in average Medicare spending across the counties in the continental United States, say Hopson and Rettenmaier. 

Source: Amy Hopson and Andrew J. Rettenmaier, "Medicare Spending Across the Map," National Center for Policy Analysis, Policy Report No. 313, July 24, 2008.

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