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Regional Inequality in Medicare Spending: The Key to Medicare Reform?

  • Skinner Jonathan

    (Department of Economics, Dartmouth College, Center for Evaluative Clinical Sciences, Dartmouth Medical School, and NBER)

  • Wennberg John E.

    (Center for Evaluative Clinical Sciences and Department of Family and Community Medicine, Dartmouth Medical School)

Medicare expenditures per capita vary widely across different parts of the country. Average fee-for-service per capita expenditures in 1995/96 were $3,420 in Eugene, Oregon, $3,663 in Minneapolis, $7,847 in Miami, and $8,861 in McAllen, Texas. These measures are adjusted for differences across regions in the age, sex, and racial composition of the population, as well as differences in the underlying cost of healthcare. In this paper, we focus on these geographical variations in the Medicare program and argue that they are central to any proposed reform of the Medicare system. The first question that must be addressed is, are these expenditures higher in high-cost areas because the elderly population there is sicker? The answer is, largely no. Many of the areas with the highest levels of spending have similar underlying disease burdens to regions with low levels of spending. Nor does quality of care or patient satisfaction appear to be better in the high-expenditure areas. These disparities bring up a number of issues related to equity across regions, efficiency of Medicare spending, and the potential for funding Medicare reform. Reducing the intensity of care in high-expenditure regions can fund prescription drug benefits for the entire Medicare population, or extend the solvency of the Medicare trust funds by ten years, without obvious adverse implications for the health or satisfaction of the elderly population.

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Article provided by De Gruyter in its journal Forum for Health Economics & Policy.

Volume (Year): 3 (2000)
Issue (Month): 1 (January)
Pages: 1-24

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Handle: RePEc:bpj:fhecpo:v:3:y:2000:n:4
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  1. Skinner, Jonathan & Fisher, Elliott, 1997. "Regional Disparities in Medicare Expenditures: An Opportunity for Reform," National Tax Journal, National Tax Association, vol. 50(3), pages 413-25, September.
  2. David M. Cutler & Louise Sheiner, 1999. "The geography of Medicare," Finance and Economics Discussion Series 1999-18, Board of Governors of the Federal Reserve System (U.S.).
  3. Kamke, Kerstin, 1998. "The German health care system and health care reform," Health Policy, Elsevier, vol. 43(2), pages 171-194, February.
  4. Richard D. Auster & Ronald L. Oaxaca, 1981. "Identification of Supplier Induced Demand in the Health Care Sector," Journal of Human Resources, University of Wisconsin Press, vol. 16(3), pages 327-342.
  5. Ronald Lee & Jonathan Skinner, 1999. "Will Aging Baby Boomers Bust the Federal Budget?," Journal of Economic Perspectives, American Economic Association, vol. 13(1), pages 117-140, Winter.
  6. Labelle, Roberta & Stoddart, Greg & Rice, Thomas, 1994. "A re-examination of the meaning and importance of supplier-induced demand," Journal of Health Economics, Elsevier, vol. 13(3), pages 347-368, October.
  7. Jonathan Gruber & Maria Owings, 1994. "Physician Financial Incentives and Cesarean Section Delivery," NBER Working Papers 4933, National Bureau of Economic Research, Inc.
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