Healthcare Spending and Utilization in Public and Private Medicare
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. Healthcare spending is 25 percent lower for MA enrollees than for enrollees in traditional Medicare (TM) in the same county with the same risk score. Spending differences between MA and TM are similar across sub-populations of enrollees and sub-categories of care, with similar reductions for "high value" and "low value" care. Spending differences primarily reflect differences in healthcare utilization; spending per encounter and hospital payments per admission are very similar in MA and TM. Geographic variation in MA spending is about 20 percent higher than in TM, but geographic variation in hospital prices is about 20 percent lower. We present evidence consistent with MA plans encouraging substitution to less expensive care, such as primary rather than specialist care, and outpatient rather than inpatient surgery, and with employing various types of utilization management. Some of the overall spending differences between MA and TM may be driven by selection on unobservables, and we report a range of estimates of this selection effect using mortality outcomes to proxy for selection.
We are grateful to Andelyn Russell, Daniel Salmon, and Martina Uccioli for excellent research assistance, and to numerous seminar participants for helpful comments. We gratefully acknowledge support from the NSF (SES-1527942, Bhattacharya, Einav, and Levin), the NIA (R01 AG032449, Einav and Finkelstein; R37 AG036791, Bhattacharya), and the Sloan Foundation (Bhattacharya, Einav, Finkelstein, and Levin). The authors acknowledge the assistance of the Health Care Cost Institute (HCCI) and its data contributors, Aetna, Humana, and UnitedHealthcare, in providing the claims data analyzed in this study. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
I would like to disclose that I am an adviser to Nuna Health, a data analytics startup company, which specializes in analytics of health insurance claims. I am not being paid by them, but have received equity (nominal value is less than $1,000; the market value is hard to assess).Jonathan D. Levin
I serve on the Advisory Board of Collective Health, which provides health benefit services to employers.