By Zack Cooper, Stuart Craig, Charles Gray, Martin Gaynor, and John Van Reenen
Health Affairs, February 2019
We examined the growth in health spending on people with employer-sponsored private insurance in the period 2007–14. Our analysis relied on information from the Health Care Cost Institute data set, which includes insurance claims from Aetna, Humana, and UnitedHealthcare. In the study period private health spending per enrollee grew 16.9 percent, while growth in Medicare spending per fee-for-service beneficiary decreased 1.2 percent. There was substantial variation in private spending growth rates across hospital referral regions (HRRs): Spending in HRRs in the tenth percentile of private spending growth grew at 0.22 percent per year, while HRRs in the ninetieth percentile experienced 3.45 percent growth per year. The correlation between the growth in HRR-level private health spending and growth in fee-for-service Medicare spending in the study period was only 0.211. The low correlation across HRRs suggests that different factors may be driving the growth in spending on the two populations.
From the Discussion
US health spending has increased steadily since 1960. In this study we analyzed growth in health spending on Medicare beneficiaries and people with employer-sponsored private health insurance in the period 2007–14. Whereas Medicare spending per fee-for-service beneficiary decreased by 1.2 percent in real terms during this period, spending per private insurance enrollee increased by 16.9 percent. Of note, there was substantial variation in the growth rates for private health spending across HRRs (less so for Medicare spending). This variation suggests that some regions are more successful than others at constraining health spending growth. This is particularly apparent in HRRs where there were negative growth rates in both Medicare and private spending.
This divergence in growth rates suggests that at least during our study period, different factors were driving health spending growth in the Medicare and privately insured populations. Prior work has demonstrated that there is a low cross-sectional correlation between HRR-level health spending on fee-for-service Medicare beneficiaries and that on people with private health insurance. One driver of this low correlation is the low correlation between the regulated payments in fee-for-service Medicare and the prices that health care providers and insurers negotiate for care. It is likely that differences in growth rates between regulated fee-for-service Medicare provider payments and providers’ negotiated transaction prices are also driving some of the difference in the growth in spending across these two populations. Indeed, recent work has found that in the short run, growth in providers’ prices is driving growth in private health spending.
This research has one very clear implication for public policy: Given the low correlation between the growth in private health spending on people with employer-sponsored coverage and the growth in spending on fee-for-service Medicare beneficiaries, separate policies will be necessary to curb spending growth in the two populations.
Full article (behind a paywall):
By Don McCanne, M.D.
Growth in health spending on people with employer-sponsored commercial health insurance from Aetna, Humana, and UnitedHealthcare, three of the five largest health insurers in the US, was compared with growth in health spending in the traditional fee-for-service Medicare program which excluded the private Medicare Advantage plans.
There were two important observations. Spending growth in the employer-sponsored commercial plans was much greater than spending growth in the traditional Medicare program, with private spending growing 16.9 percent over 2007-14 and Medicare spending actually decreasing 1.2 percent (during SGR years). The other observation is that there was tremendous variation in private spending between hospital referral regions which had a very low correlation with Medicare spending in those regions.
The authors note, “One driver of this low correlation is the low correlation between the regulated payments in fee-for-service Medicare and the prices that health care providers and insurers negotiate for care. It is likely that differences in growth rates between regulated fee-for-service Medicare provider payments and providers’ negotiated transaction prices are also driving some of the difference in the growth in spending across these two populations. Indeed, recent work has found that in the short run, growth in providers’ prices is driving growth in private health spending.”
Thus the traditional, public fee-for-service Medicare program has been much more effective in controlling spending than have the large, private commercial insurers which have operated more as a loose canon in cost containment.
Since the study was done while the the Medicare sustainable growth rate formula was in effect, it may be that the negative spending growth for Medicare was too severe at that time (since abandoned), but it does show that public policies are more effective than the private market in controlling and stabilizing health care spending growth.
Regardless, this study does support enactment and implementation of the single payer Medicare for All model as a method of achieving a more sustainable growth in health care spending in the future.
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