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Health Spending Significantly Varies for Privately Insured
A recent Health Care Pricing Project report, which focused on employer-based health insurance and hospital pricing, found that insurers are paying a substantially different price for the same services in hospitals. They also concluded that health spending on privately insured plans vary by three factors across the country.
Zack Cooper, PhD, assistant professor at the Yale School of Public Health at Yale University, and colleagues, used insurance claims data from three of the nation’s largest insurance companies—Aetna, Humana, and UnitedHealthcare. With this data, which accounted for 28% of Americans with employer-based coverage between 2007 and 2011, the researchers examined payer-hospital contracts for hospital pricing variations.
According to the report, the location of a hospital is a major factor that impacts pricing.
“Health spending per privately insured beneficiary differs by a factor of three across geographic areas and has a very low correlation with Medicare spending,” the authors noted in the report.
The researchers determined that the mean spending per beneficiary in 2011 was $4197. They also found that the total spending per privately insured beneficiary in the highest spending hospital referral region (HRR) —Anchorage, Alaska—was $6366, more than three times as much as spending per beneficiary in the lowest spending HRR—Honolulu, Hawaii—which spent $2110 per person. Similarly, the HRR in the 90th percentile of the spending distribution—Grand Junction, Colorado—spent 47.3% more than the HRR in the 10th percentile of spending distribution—Sarasota, Florida.
Along with hospital regions, competition also impacts hospital pricing, according to the report. Oftentimes hospitals with little competition have higher prices that put more risk onto insurers. Comparatively, the researchers explained that competitive markets have different outcomes.
“In concentrated insurer markets the opposite occurs—hospitals have lower prices and bear more financial risk,” they said.
The report noted that a lack of competition may potentially affect the move to value-based contracting. The researchers said that providers who have fewer potential competitors may be slower to take on more risk, and because of that, payers are left with little leverage to push them in that direction.
Additionally, the researchers observed data on 366 hospital mergers between 2007 and 2011 and found that hospital mergers also impact variations in pricing.
“Mergers within 5 miles are associated with price increases of 6 percent whereas the coefficients decline to 2 percent for mergers involving hospitals located up to 25 miles apart,” they wrote.
The overall findings of the report suggest that health spending does differ for privately insured plans.
“While our analysis is not causal, it does suggest that policy-makers should continue to analyze whether potential hospital mergers could harm consumer welfare,” Dr Cooper and colleagues concluded. “Likewise, while we cannot draw strong normative conclusions, quantifying the scale of the variation in prices is nevertheless important.”
—Julie Gould
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