Publication date: 
August 1, 2022

New analysis also sheds light on impact of Medicaid expansion on health care spending

SEATTLE, Wash. — A new state-level analysis of health care costs after implementation of the Affordable Care Act shows wide variations in system-wide health care spending across states. The study, conducted by researchers from the Institute for Health Metrics and Evaluation (IHME) at the University of Washington’s School of Medicine and published today in the journal Health Affairs, reveals that differences in spending between states have increased over time, suggesting that some states are more effective at controlling rising health care costs than others. IHME’s analysis also sheds light on the spending changes associated with Medicaid expansion on health care spending.

“Our analysis suggests that a sizable share of the variation in health care spending is associated with non-health-care system factors like household income and consumer prices. However, there is a major part of the spending variation that is not explained by the major non-health system factors and therefore represents variation caused by differences in how states run their health systems,” said Emily Johnson, Health Expenditure Researcher at IHME and a lead author of the study. “Policymakers in states with higher health care costs can learn a lot from other states that deliver high-quality health care more efficiently.”   

IHME’s analysis shows that at the state level, health care spending per person (inclusive of Medicare, Medicaid, private insurance, Veterans Affairs, the Indian Health Service, and out-of-pocket spending) varied widely in 2019, ranging from $7,250 in Utah to $14,500 in Alaska. While health care spending increased across the board, some states saw much sharper increases than others. From 2013 to 2019, increases in per capita spending ranged from 1 percent in Washington, DC, to 4.2 percent in South Dakota (after adjusting for inflation). The spending gap between states has also widened considerably since 2000. 

A complex set of factors, including age, health, income of the population, and cost of living explained a large share of these varied growth rates, but even after controlling for these factors, substantial variation exists. Over 20 percent of the spending variation identified by the study couldn’t explained by key non-health system factors like income and population characteristics, and therefore represents differences likely explained by differences in states’ health care systems. Some health system characteristics that were associated with greater increases include growth in the number of hospitals, increased utilization of hospital inpatient services, and expansion of insurance coverage. This study provides evidence that supports the perspective that investing in prevention and outpatient care could help curb spending growth.  

The analysis shows that out-of-pocket spending varied more than overall health care spending. For example, while overall health care spending is 50 percent higher in South Dakota than it is in Arizona, the average South Dakotan spends nearly three times as much out of pocket per year ($4,600) compared to the average Arizonan ($1,700).

“Controlling health care costs requires concerted action on multiple fronts,” said Dr. Joseph Dieleman, Associate Professor in the Department of Health Metrics Sciences at the University of Washington and a lead author of the study. “To help curb increases to health care spending, states should invest in delivering health care outside of hospitals through robust primary care systems and focus on incentivizing high-value care.”

In addition, the IHME researchers are calling for academics to conduct further research on state-level health care spending to better understand the drivers of unexplained differences in spending across states.

Unlike previous studies, IHME’s analysis accounts for health spending from all sources: public insurance programs including Medicare, Medicaid, Veterans Affairs, and the Indian Health Service; private insurance; and out-of-pocket spending.

The association between Medicaid expansion and health care spending

IHME’s study found that Medicaid expansion was associated with a 1 percent increase in overall costs across the states. This represents a small amount of the variation in spending and pales in comparison to other factors that affect health care spending, such as household income and consumer prices. For children, expanding Medicaid eligibility was associated with lower health care spending, likely due to increased access to preventive medicine, and for pregnant women, increasing eligibility was associated with lower out-of-pocket spending. The study also revealed that average growth rates for out-of-pocket spending were lower in states that expanded access to Medicaid (0.3 percent for Medicaid expansion states vs. 1.2 percent for non-expansion states) and private insurance spending (1.1 percent for Medicaid expansion states vs. 2 percent for non-expansion states). 

To existing estimates, IHME’s analysis added spending estimates for 2015–2019, shedding light on a period of substantial change in health policy at the state and federal levels. Because of data limitations, most previous studies of state-level health spending have looked at health care spending through 2014, prior to Medicaid expansion in states.

“We know from previous studies that when states enact Medicaid expansion, people have greater access to health care and, by some measures, better health outcomes,” said Dr. Dieleman. “For the first time, there’s reliable research that reports the costs for all payers of expanding eligibility for Medicaid, including tracking changes to out-of-pocket spending.”

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About the Institute for Health Metrics and Evaluation

An independent population health research organization based at the University of Washington School of Medicine, the Institute for Health Metrics and Evaluation (IHME) works with collaborators around the world to develop timely, relevant, and scientifically valid evidence that illuminates the state of health everywhere. In making our research available and approachable, we aim to inform health policy and practice in pursuit of our vision: all people living long lives in full health.