Roles of Prices, Poverty, and Health in Medicare and Private Spending in Texas

Objectives: To investigate the roles of prices, poverty, and health in divergences between Medicare and private spending in Texas. Study Design: Retrospective observational design using 2011 Blue Cross Blue Shield of Texas claims data and publicly available Medicare data. Methods: We measured market-level spending per enrollee among the privately insured. Variation in Medicare and private spending per person are decomposed into prices and quantities, and their associations with poverty are measured. Markets are divided into 4 groups and are compared based on the ratio of Medicare to private spending: "high-private," " proportional," " high-Medicare," and " extremely high-Medicare." Results: Among the privately insured, poverty appears to have large spillover effects; it is strongly associated with lower prices, quantities, and spending. Among Medicare beneficiaries, health status is a key driver of spending variation. The 2 markets with extremely high Medicare-to-private spending ratios (Harlingen and McAllen) are predominantly Hispanic communities with markedly higher rates of poverty and lack of insurance and also extremely low physician supply. The markets with relatively high private spending stand out for having good health-system performance and health outcomes, and higher than average hospital prices. Conclusions: Variation in private spending appears to reflect the ability of the local population to pay for healthcare, whereas variation in Medicare is more heavily driven by health status, and presumably, by clinical need. These findings highlight the inadvisability of using Medicare spending as a proxy for system-wide spending, and the need for comprehensive market-level spending data that allow comparisons among populations with different sources of insurance coverage.