An IHME study shows dramatic disparities in health care costs across US states

A new analysis also sheds light on the impact of Medicaid expansion on health care costs

SEATTLE, August 1, 2022 /PRNewswire/ — A new state-level analysis of health care spending since the implementation of the Affordable Care Act shows wide disparities in system-wide health care spending across states. The study, conducted by researchers from the Institute for Health Metrics and Evaluation (IHME) in University of Washington Faculty of Medicine and published today in the journal Health matters, reveals that spending differences between states have widened over time, suggesting that some states are more effective at controlling rising health care costs than others. The IHME analysis also sheds light on the cost changes associated with Medicaid expansion on health care spending.

“Our analysis suggests that a significant portion of the variation in health care costs is related to factors outside the health care system, such as household income and consumer prices. However, there is much of the variation in spending that is not explained by underlying factors outside the health system and therefore represents variation caused by differences in how countries manage their health systems,” said Emily Johnson, a health care cost researcher at IHME and lead author of the study. “Policymakers in countries with higher health care costs can learn a lot from other countries that provide high-quality health care more efficiently.”

IHME’s analysis shows that at the state level, health care spending per person (including Medicare, Medicaid, private insurance, Veterans Affairs, Indian Health Service and out-of-pocket costs) varied widely in 2019, ranging from $7,250 in Utah to $14,500 in Alaska. While health care costs increased across the board, some states saw much steeper increases than others. From 2013 to 2019, increases in per capita spending ranged from 1 percent in Washingtonto 4.2 percent in South Dakota (after adjusting for inflation). The spending gap between states has also widened significantly since 2000.

A complex set of factors, including age, health, population income, and cost of living, explain much of these varied growth rates, but even after controlling for these factors, considerable variation exists. More than 20 percent of the cost variation identified by the study could not be explained by key factors outside the health system, such as income and population characteristics, and therefore represented differences likely explained by differences in countries’ health systems. Some features of the health care system that are associated with larger increases include an increase in the number of hospitals, increased use of hospital services for inpatient care, and expansion of insurance coverage. This study provides evidence to support the view that investing in prevention and ambulatory care can help limit cost growth.

The analysis shows that out-of-pocket costs vary more than total health care costs. For example, while overall health care costs are 50 percent higher in South Dakota than it is in Arizonathe average South Dakotan spends nearly three times more out of pocket per year ($4600) compared to the average Arizonan ($1700).

“Controlling health care costs requires concerted action on many fronts,” said Dr. Joseph DillemanAssociate Professor in the Department of Health Metrics Sciences University of Washington and lead author of the study. “To help contain increases in health care costs, states must invest in providing health care outside of hospitals through robust primary care systems and focus on incentivizing high-quality care.”

In addition, the IHME researchers urge academics to conduct further research on health care spending at the state level to better understand the causes of unexplained differences in spending across states.

Unlike previous studies, the IHME analysis accounted for health care spending from all sources: social insurance programs, including Medicare, Medicaid, Veterans Affairs and the Indian Health Service; private insurance; and out-of-pocket expenses.

The relationship between Medicaid expansion and health care spending

The IHME study found that Medicaid expansion was associated with a 1 percent increase in total spending across states. This accounts for a small portion of the variation in costs and pales in comparison to other factors that affect health care costs, such as household income and consumer prices. For children, expanding Medicaid eligibility was associated with lower health care costs, possibly due to increased access to preventive medicine, and for pregnant women, increased eligibility was associated with lower out-of-pocket costs. The study also found that average growth rates of out-of-pocket spending were lower in states that expanded Medicaid access (0.3 percent for states with Medicaid expansion vs. 1.2 percent for states without expansion) and private insurance costs (1.1 percent for Medicaid expansion states vs. 2 percent for non-expansion states).

To the existing projections, the IHME analysis added cost projections for 2015–2019, shedding light on a period of significant change in health policy at the state and federal levels. Because of data limitations, most previous studies of state-level health care spending have looked at health care spending in 2014, before states expanded Medicaid.

“We know from previous studies that when states adopt Medicaid expansion, people have greater access to health care and, by some measures, better health outcomes,” said Dr. Dilleman. “For the first time, there is reliable research that accounts for all payer costs of expanding Medicaid eligibility, including tracking changes in out-of-pocket costs.”

About the Institute for Health Metrics and Evaluation

An independent population health research organization based in University of Washington The Faculty of Medicine’s Institute for Health Metrics and Evaluation (IHME) works with collaborators around the world to develop timely, relevant and scientifically valid evidence that illuminates health everywhere. By making our research accessible and accessible, we aim to inform health policy and practice in pursuit of our vision: for all people to live long lives in full health.

SOURCE Institute for Health Metrics and Evaluation

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