Source: Amy Hopson and Andrew J. Rettenmaier, National Center for Policy Analysis, NCPA Policy Report No. 313, July 2008
Though talk of fundamentally reforming Medicare has been limited lately, the baby boomers’ imminent retirement and the continued rise in health care costs will force Medicare back to the forefront of upcoming policy discussions.
The Medicare Trustees and the Congressional Budget Office both predict that Medicare spending as a percentage of gross domestic product (GDP) will double by 2030. Therefore, all possible means of making Medicare more efficient should be considered in light of its increasing importance to taxpayers. One possible avenue for reform is seen in the wide regional variations in Medicare spending that exist and have persisted through time. If Medicare reimbursements could be constrained to the levels existing in the lower cost areas, the program’s costs could be reduced significantly.
But why do Medicare costs vary so dramatically from area to area? Why, for example, is average Medicare spending in Los Angeles almost 70 percent higher than in Green Bay, Wisconsin? The purpose of this study is to examine the county-by-county variation in Medicare spending, look for causes of this variation and suggest reforms that can narrow the variation that can’t be explained by the causes we can observe. These reforms not only address the regional variations, but more importantly reduce the program’s costs. Most previous studies have analyzed Medicare spending differences at the state or hospital referral region (HRR) level. Since there are just over 300 HRRs and over 3,100 counties, this study allows for closer examination and more precise analysis of the regional variation.