Tag Archives: geographic cost disparity

Geographic cost differences of more than $6,000

Healthcare costs differ from one region to the next. This year’s Milliman Medical Index (MMI) once again illustrates this variation by examining 14 cities. Miami is the most expensive city studied, at $24,965, while Phoenix is the least expensive, at $18,365.

Miami has been the most expensive city for several years, which caught the eye of the Miami Herald. Here is an excerpt:

The Miami area continues to have the highest healthcare costs in the country, according to the latest edition of the Milliman Medical Index…

The number include employer and employee costs, including some out-of-pocket deductibles and co-pays.

For years, the Miami region has ranked at or near the top of costs for Medicare, with seniors here often costing twice as much a year as those in places like Salt Lake City or Minneapolis-St. Paul, according to studies by Dartmouth doctors…

Dartmouth has long attributed the high costs in Miami to the area’s large numbers of specialists and an over-supply of hospital beds.

How do these costs vary across the 14 cities analyzed in the MMI? Here is an illustration:

Countdown to MMI 2012: Geographic cost differences

Maryland recently announced the launch of a “Health Enterprise Zones” program to address regional disparities in healthcare delivery and costs. From the Baltimore Sun:

The proposed program would work something like economic enterprise zones, where businesses receive subsidies to create jobs and activity in certain areas. The health zones program would be a pilot, available in two or three geographic areas.

New and existing primary-care practitioners could receive loan assistance repayment; income, property or hiring tax credits; and assistance in installing health information and other technology. Subsidies would be capped, likely in the tens of thousands of dollars. Local health departments might get involved in recruiting participants.

Geographic differences in healthcare costs have been much discussed in recent years. As the 2011 Milliman Medical Index (MMI) describes the issue:

It’s frequently stated that healthcare is local. While the same cost drivers affect trends in each locale, the magnitude of price pressures and utilization is different in each city and changes from year to year. To illustrate these differences, the MMI tracks costs for 14 different cities across the United States. MMI costs in the most expensive of these cities (Miami) are more than a third higher than in the least expensive (Phoenix).

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How will health costs change from one region to the next?

The cost of healthcare for a typical American family varies from one location to the next. Here is the most recent comparison of those costs across 14 geographic areas, according to the Milliman Medical Index.

How will this regional variation be affected by health reform?

The new underwriting and rating restrictions that will be imposed on individual and small employer group plans in 2014 will have different implications depending on a family’s location. The changes will require that insurance be guaranteed issue (i.e., applicants cannot be turned down), and that it be offered at adjusted community rates that do not allow carriers to “rate up” premiums based on the health status or claim experience of applicants.

Current underwriting and rating rules vary by state, so the effects of these changes will also vary by state. Minimum loss ratio requirements (80% for individual and small group and 85% for large group) may affect insurer rates. The U.S. Department of Health and Human Services (HHS) rule that any rate increase of 10% or more is deemed to be “excessive” will affect rate increase actions. Because states vary in their rate review practices and approval authority, the effect of these changes will also vary from state to state. Further, the Patient Protection and Affordable Care Act (PPACA) encouragement of the development of accountable care organizations (ACOs) and consumer operated and oriented plan (CO-OP) arrangements may affect the way care is coordinated and financed—with differences from state to state. As a result of all these things, the relative cost of care by state may look very different in a few years than it does today.

Adding commercial populations to the regional cost discussion

Analysis of Medicare cost and utilization data has been extensively documented, most notably by the Dartmouth Atlas, and has revealed significant variation from one region to the next. Similar analysis using commercial insurance data, however, has been lacking. This study, the first to consider commercial populations, examines regional cost variation, providing cost relativities for claims paid by commercial payors for particular hospital referral regions. Among other findings, the study highlights the importance of negotiated provider reimbursement as a factor in the nation’s healthcare cost. While Medicare sets provider reimbursement rates based on formulas and rules, commercial provider reimbursement is set by negotiation between the insurer and the provider. This means, among other things, that regions with low Medicare costs could have high commercial costs. An examination of commercial data alongside Medicare data is crucial for understanding the true nature of healthcare cost variation across the country.

How do provider/insurer negotiations affect health costs?

Negotiations between providers and insurers have significant healthcare cost implications–just look at California as an extreme example of this. And the variation is not just on a state-by-state basis. An article in today’s Dallas Morning News clarifies this dynamic:

Average health care costs for Texans with insurance are higher in two midsized markets — Lubbock and Tyler — than in the big urban centers, according to Houston actuary Tim Lee.

In Lubbock and Tyler, there are two dominant hospital systems “that can leverage higher fees” from insurance companies, said Lee, principal and consulting actuary with Milliman Inc., a large national actuarial firm. He spoke at a panel at an Association of Health Care Journalists meeting in Chicago.

In Dallas, Fort Worth, Houston and San Antonio, “they have more systems competing,” which drives down the prices that big hospital networks can negotiate with insurers, he said.