Health Care Spending and Utilization in Public and Private Medicare

Abstract

We compare healthcare spending in public and private Medicare using newly available claims data from Medicare Advantage (MA) insurers. MA insurer revenues are 30 percent higher than their healthcare spending. Adjusting for enrollee mix, healthcare spending per enrollee in MA is 9 to 30 percent lower than in traditional Medicare (TM), depending on the way we define "comparable" enrollees. Spending differences primarily reflect differences in healthcare utilization, with similar reductions for "high value" and "low value" care, rather than healthcare prices. We present evidence consistent with MA plans encouraging substitution to less expensive care and engaging in utilization management. (JEL H11, H42, H51, I11, I13).

Figure 1:. MA penetration over time

Figure shows the share of Medicare beneficiaries enrolled in Medicare Advantage plans, year by year. The data source is CMS’ Medicare Managed Care Contract Plans Monthly Summary Reports. All data are from December of the year indicated.

Figure 2:. State-by-State Comparison of TM and MA Spending

Figure plots MA spending per enrollee-month against TM spending per enrollee-month for each of the 36 states in our baseline sample. Coefficients of variation across states in spending are computed using total Medicare enrollees in the state as a weight. The size of each bubble is proportional to the number of total Medicare enrollees in the state.

Figure 3:. TM-MA Spending Differences across States

Figure plots the (percentage) difference between average MA spending and (re-weighted) TM spending per enrollee- month against average TM spending for each of the 36 states in our baseline sample. The y-axis in the top panel compares MA spending to TM spending that is re-weighted to match the MA population on county and risk score, using our preferred weighting (see Table 2, Panel A, column (4)). The bottom panel does the same but using predicted mortality to adjust for selection on unobservables (see Table 2, Panel B, column (4)), as described in Section III. The size of each bubble is proportional to the number of total Medicare enrollees in the state. The x-axis reports average (unadjusted) TM spending in the state (see Table 2, Panel A, column (1)).

Figure 4:. TM-MA price differences for inpatient admissions, across DRGs

Figure plots the (percentage) difference between average MA prices and TM prices for a hospital admission, overall and for the 20 most common DRGs in MA. Average MA or TM prices for a given DRG are computed using a common (MA) basket of state admission shares for that DRG. The national average price in MA or TM is computed by weighting each DRG (including the less common ones not shown here) by its (national) share of MA admissions. The size of each bubble (except for the overall “Average” bubble) is proportional to the number of MA admissions with that DRG.

Figure 5:. TM-MA price differences for inpatient admissions, across states

Figure plots the (percentage) difference between average MA prices and TM prices for a hospital admission for each state in our baseline sample (except Alaska which is omitted because it has too few inpatient admissions for us to report). Averages are computed for each state using a common (MA) “basket” of DRG admission shares. The size of each bubble is proportional to the number of MA admissions in that state. Coefficients of variation across states in prices are computed using total Medicare enrollees in the state as a weight.