NCPA - National Center for Policy Analysis

McAllen, El Paso Spending Differences Are Substantially Smaller Under Private Insurance

December 8, 2010

Whether Medicare or private insurance pays for health care appears to make a significant difference in health spending variation, according to a study by Luisa Franzini of the University of Texas Health Science Center (UTHealth) and coauthors.  The study shows that in two Texas cities, sharp differences in Medicare's per capita health care spending were significantly diminished when private insurance paid the bill.

The results were surprising, the study authors say.

  • Medicare spending in McAllen, Texas, was 63 percent higher than in El Paso, Texas, for inpatient care, 32 percent higher for outpatient care and 65 percent higher for Part B professional services.
  • The largest difference was for home health care: McAllen was 4.63 times higher than the average in El Paso and 7.14 times higher than the national average.
  • On the other hand, hospice spending in McAllen was just a quarter of the level in El Paso and the national average.

But for the under-65 population, spending on professional and inpatient services was similar in both cities, and spending for outpatient services in McAllen was 31 percent less.

  • Use of medical services was also similar or somewhat lower in McAllen compared to El Paso.
  • Inpatient admissions in McAllen were 84 percent of admissions in El Paso; professional and outpatient services in McAllen were 94 percent and 72 percent respectively of those in El Paso.

Franzini and coauthors explored several potential explanations for their findings.  Neither differences in health care prices nor population disease burden between the two cities accounted for these spending variations.

The most probable explanation, they speculate, has to do with which payers are better at controlling costs around what study author Mikhail calls the "grey zone of treatment" -- areas where legitimate medical judgments can be quite variable.  Medicare exercises very little utilization management, whereas private insurers, such as Blue Cross Blue Shield of Texas, can be much more assertive about controlling service use.

Source: Chris Fleming, "McAllen, El Paso Spending Differences Are Substantially Smaller Under Private Insurance," Health Affairs, December 7, 2010.

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