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The geography of Medicare

Author

Listed:
  • David M. Cutler
  • Louise Sheiner

Abstract

There is a great deal of geographic variation in Medicare spending. For example, while the average Medicare cost per beneficiary was around $5200 in 1996, Medicare spending, adjusted for differences in regional prices and demographic composition, was about $8000 per person in Miami, but only $3500 in Minneapolis. In this paper, we explore the source of this variation. We find that a substantial amount can be explained by differences across areas in the health of the elderly population. This finding suggests that some of the geographic variation in Medicare spending is efficient. But even accounting for differences in the health of the population, significant variation remains. We have been able to explain some of the remaining variation. The strongest factors are supply variables: for-profit hospitals and specialist physicians both increase Medicare spending. If these factors are exogenous, public policy may want to consider the supply of medical services more than it currently does. We do not find that expensive places spend a disproportionate amount on those near death.

Suggested Citation

  • 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.).
  • Handle: RePEc:fip:fedgfe:1999-18
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    References listed on IDEAS

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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, 1998. "Managed Care and the Growth of Medical Expenditures," NBER Chapters,in: Frontiers in Health Policy Research, Volume 1, pages 77-116 National Bureau of Economic Research, Inc.
    3. Sloan, Frank A. & Picone, Gabriel A. & TaylorJr., Donald H. & Chou, Shin-Yi, 2001. "Hospital ownership and cost and quality of care: is there a dime's worth of difference?," Journal of Health Economics, Elsevier, vol. 20(1), pages 1-21, January.
    4. Skinner, Jonathan & Fisher, Elliott, 1997. "Regional Disparities in Medicare Expenditures: An Opportunity for Reform," National Tax Journal, National Tax Association;National Tax Journal, vol. 50(3), pages 413-425, September.
    5. Laurence C. Baker & Martin L. Brown, 1997. "The Effect of Managed Care on Health Care Providers," NBER Working Papers 5987, National Bureau of Economic Research, Inc.
    6. Cutler David M. & Sheiner Louise, 1998. "Managed Care and the Growth of Medical Expenditures," Forum for Health Economics & Policy, De Gruyter, vol. 1(1), pages 1-41, January.
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    Citations

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    Cited by:

    1. Masayoshi Hayashi & Akiko Oyama, "undated". "Factor decomposition of inter-prefectural health care expenditure disparities in Japan," Discussion papers ron264, Policy Research Institute, Ministry of Finance Japan.
    2. repec:eee:hepoli:v:122:y:2018:i:3:p:293-300 is not listed on IDEAS
    3. Louise Sheiner, 2013. "Why the geographic variation in health care spending can't tell us much about the efficiency or quality of our health care system," Finance and Economics Discussion Series 2013-04, Board of Governors of the Federal Reserve System (U.S.).
    4. Boris Augurzky & Thomas Kopetsch & Hendrik Schmitz, 2013. "What accounts for the regional differences in the utilisation of hospitals in Germany?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 14(4), pages 615-627, August.
    5. Craig William Perry & Harvey Rosen, 2001. "Insurance and the Utilization of Medical Services Among the Self-Employed," CESifo Working Paper Series 580, CESifo Group Munich.
    6. Victor R. Fuchs & Mark B. McClellan & Jonathan S. Skinner, 2004. "Area Differences in Utilization of Medical Care and Mortality among U.S. Elderly," NBER Chapters,in: Perspectives on the Economics of Aging, pages 367-414 National Bureau of Economic Research, Inc.
    7. Brandon Roberts & Irving Hoch, 2009. "Malpractice litigation and medical costs in the United States," Health Economics, John Wiley & Sons, Ltd., vol. 18(12), pages 1394-1419.
    8. Dunn, Abe & Shapiro, Adam Hale & Liebman, Eli, 2013. "Geographic variation in commercial medical-care expenditures: A framework for decomposing price and utilization," Journal of Health Economics, Elsevier, vol. 32(6), pages 1153-1165.
    9. Sherman Folland, 2005. "The Quality of Mercy: Social Health Insurance in the Charitable Liberal State," International Journal of Health Economics and Management, Springer, vol. 5(1), pages 23-46, January.
    10. Skinner Jonathan & Wennberg John E., 2000. "Regional Inequality in Medicare Spending: The Key to Medicare Reform?," Forum for Health Economics & Policy, De Gruyter, vol. 3(1), pages 1-24, January.
    11. Datta, Anusua & Vandegrift, Donald, 2011. "Effects of welfare reform and the state children’s health insurance program on medicaid and total health expenditures," MPRA Paper 36486, University Library of Munich, Germany.
    12. Brandon Roberts & Irving Hoch, 2007. "Malpractice litigation and medical costs in Mississippi," Health Economics, John Wiley & Sons, Ltd., vol. 16(8), pages 841-859.

    More about this item

    Keywords

    Medicare;

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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