Health Status and Hospital Prices Key to Regional Variation in Private Health Care Spending

NIHCR Research Brief No. 7
February 2012
Chapin White

Differences in health status explain much of the regional variation in spending for privately insured people, but differences in provider prices—especially for hospital care—also play a key role, according to a study by the Center for Studying Health System Change (HSC) based on claims data for active and retired nonelderly autoworkers and dependents. Although autoworkers’ health benefits essentially are uniform nationally, health spending per enrollee in 2009 varied widely across 19 communities with large concentrations of autoworkers, from a low of $4,500 in Buffalo, N.Y., to a high of $9,000 in Lake County, Ill.

Autoworkers in high-spending communities receive roughly 50 percent more services than those in low-spending communities, but the higher quantity of services appears to be largely accounted for by greater health needs. Autoworkers in high-quantity communities have significantly more disease diagnoses and appear to be much sicker than enrollees in low-quantity communities. At the same time, poorer health among autoworkers appears to reflect a broader syndrome of poor health affecting entire communities.

Moreover, wide differences across communities in the prices paid to health care providers also explain a large share of regional spending variation. For physician office visits, prices paid by the autoworker plan are similar to Medicare prices and vary little across communities. For hospital services, the prices paid by the autoworker plan far exceed Medicare prices and vary widely across communities. The study findings suggest that opportunities to control spending growth lie in restraining hospital prices and improving people’s health status, which will require purchasers to develop new strategies.

This article can be accessed at the National Institute for Health Care Reform Web site.