Why health care costs vary in one chart

There’s no shortage of evidence that health care prices vary dramatically across the country - and no shortage of questions about why this is true. Are certain populations sicker? Doctors charging more? Patients seeking more unnecessary treatments? All of the above?

New research from the National Institute for Health Care Reform takes a novel approach to answering this question: analyzing health care spending by American autoworkers employed by Chrysler, Ford and General Motors. The three automakers provide health care benefits to over 1 million people, creating a huge data set of people who have access to the same health care benefits at 19 different sites across the country.

Like studies before it, these researchers found huge variance in per-worker spending, from $4,500 in Buffalo, N.Y. to $9,000 in the Chicago area. About 37 percent of the variation, as you can see in the chart above, had to do with medical status: High-spending areas had workers in worse health than those with lower-spending.

Other factors mattered a lot, too. They saw big differences in how much providers charge for the same service, and that accounted for another third of the spending variation. “In the lowest-price communities—Syracuse and St. Louis—the autoworker prices are 30 percent above Medicare,” the researchers find. “In the highest-price community—Lake County—the autoworker price is more than two-and-half times the Medicare price.” Finally, excess use of health care was responsible for about 18 percent of the variation.

One possible solution to bringing down health care costs - getting high cost areas to look like low cost areas - could be rate setting, with state regulators having a say in what providers charge. The study authors also suggest the idea of tiered networks, where certain, more expensive services cost more. With so many factors driving up health care costs, however, it’s quite likely no one policy solution will be a silver bullet.

(h/t: Jordan Rau)