Variation in Private Health Insurance Spending

By February 28, 2019 Commentary

A study using data from the Health Care Cost Institute and published in Health Affairs examines health spending on people covered by employer-sponsored health insurance from 2007 to 2014.   (HA Article)   The authors were particularly interested in variation in health spending growth across hospital referral regions.  For Medicare, substantial variation has been shown, but it also appears to be the case that private and Medicare spending variation by region have little correlation.  There are 306 hospital referral regions and the analysis included all but 12 of them, for which there were two few private enrollees each year.  The study was limited to people younger than 65.  Drugs covered under a pharmacy benefit were also not included but it is unlikely that affected the results of the analysis.  Per person employer-sponsored insurance increased from $3304 in 2007 to $3864 in 2014, or 16.95 growth.  Medicare fee-for-service program spending per beneficiary declined 1.2% during the same time.  There was significant compounded annual growth rates in spending per privately insured person across HRRs in constant 2014 dollars, ranging from a few regions with declines to a number with rates over 3%.  The median HRR had a 2.02% annualized increase, while those in the tenth percentile of growth experienced at .22% one and those in the 90th percentile had a 3.45% annualized growth rate.  Comparable growth rates and variation were much lower in the Medicare population, with the tenth percentile being a decline of .86% and the 90th a rise of .94%.

All but 19 HRRs had growth in real spending per member during the period, but only half of them did for the Medicare population.  There was little correlation between the Medicare fee-for-service population and the employer health plan covered person growth rates.  The correlation was only .21, which is quite low.  Even looking at the privately insured population aged 55 to 64, the correlation was only .24.  For both populations, much more spending growth occurred in outpatient services than inpatient ones.  The authors in this study did not decompose spending into price and utilization factors, but other research has shown that price is the dominant factor.  This would go a long way to explaining the divergence in Medicare and employer-sponsored plan health spending growth, since Medicare dictates prices, basically on a national basis.  And it would be useful to look at relative concentration in HRRs among both providers and insurers, because price increases are undoubtedly linked to the interplay between levels of concentration in these two markets.  But one conclusion the authors derive from the study is that different policies may be needed to address spending issues in the two different types of coverage.

Kevin Roche

Author Kevin Roche

The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry through Roche Consulting, LLC. Mr. Roche is available to assist health care companies through consulting arrangements and may be reached at khroche@healthy-skeptic.com.

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