The Dose

Welcome to The Dose, which tackles the finances behind local health care and life sciences and points to the most interesting national analysis. Your host is J.K. Wall.

Health Care & Life Sciences / Life Science & Biotech

The bill for Hoosiers’ excess health care spending: About $5 billion per year

November 11, 2013

Indiana prides itself on its low cost of living. But when it comes to health care, this is an expensive place to be.

Hoosiers' poor health, combined with an aggressive health care system and an uncompetitive health insurance sector, means Hoosiers, in spite of the fact that they earn just 86 cents for every dollar earned by the average American, are spending nearly $1.13 on health care for every dollar spent by Americans.

If Hoosiers simply spent the same percentage of their incomes on health care as average Americans, they would save a whopping $5 billion.

That's what I found by comparing federal data gathered on the health care expenditures of residents in every U.S. state. The data, released by the Centers for Medicaid & Medicare Services, can be found here.

CMS, as the agency is called, tallied Hoosiers' health spending in 2009 (the most recent year available) at $42.8 billion. That level of spending equaled 20 percent of the total personal income in the state that year. But nationwide, health care spending accounted for just 17.6 percent of total personal income.

So I calculated how much Hoosiers' would save if they spent only 17.6 percent of their annual income on health care. The answer? $37.8 billion--which is $5 billion less than Hoosiers actually spend each year. That's $780 per person.

To see my efforts to explain why health care spending in Indiana is high, go here, here and here. The short answers are: 1) Hoosiers are fatter, sicker and older than the nation; 2) Hoosier health care providers, especially the hospitals, are in general overpriced and aggressively pursue high utilization of their services; and 3) Indiana's health insurers, especially Anthem, have been more concerned about market share than about actually holding down the cost of medical care.

But in this post, I'm going to concentrate on who's getting the extra money and who's paying for it.

To answer that first question, I examined how much of their incomes Hoosiers are spending on each category of health care and then subtracted out the amount they would be spending if they were spending the same percentage of incomes as all Americans. The remainder is the amount of excess spending for each category.

(I'll note at this point that the CMS data does not include money spent on health insurance administration. Nationally, this figure is 6 percent. It's probably higher in Indiana, if for no other reason than the fact that insurers are processing more and larger claims. Also, the market dominance of Anthem Blue Cross and Blue Shield, even though it is not unique to Indiana, may allow it to command higher levels of overhead and profit. But I have no data to verify or rule out that possibility.)

So, without further ado, here is where Hoosiers' excess health care spending ends up:

Hospitals: $3 billion

Nursing homes: $1.1 billion

Drugs: $595 million

Doctors/Clinicians: $583 million

Medical devices: $149 million

Math whizzes will immediately notice that these amounts add up to more than $5 billion. That's partly due to rounding. But it's also because Hoosiers spend a whopping $422 million less than the national average on home health care (which, given the high nursing home spending, raises an interesting policy issue) and about $10 million less on "other" health care services.

So who pays for all this spending? The short answer is, we do--through federal and state taxes, and through higher health insurance premiums. But here's the additional detail, anyway.

The biggest chunk, 45 percent, is shouldered by private payers--employers and individuals. Collectively, they paid nearly $2.3 billion more than they would have is Hoosier health care spending were on par with the national average.

The federal government, through the Medicare program for seniors and through its share of of the Medicaid program for the poor, pays an extra $2.2 billion in Indiana--or 44 percent of the total excess.

The state government, through its share of the Medicaid program, pays an extra $534 million than it would if Hoosiers' health care spending were the same as the national average. That's nearly 11 percent of the excess.

Even if we exclude the federal spending, Hoosiers are directly forking over nearly $2.8 billion a year--or $434 per person--for health care spending that the average American doesn't have to spend.

For a family of four, like mine, that's enough money to pay for a decent vacation. And for a state that has been slipping further and further behind its national peers in wealth, it's a bill that is beyond unaffordable. It's just wasteful.

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