Sources of Geographic Variation in Health Care Spending and Utilization Among Individuals with Employer Sponsored Insurance

We examined the extent to which geographic variation in health care spending among the commercially insured is due to variation in the underlying population of different areas as opposed to variation in their health care systems. Using health care claims data for a population of non-elderly individuals with employer-sponsored insurance coverage from the Health Care Cost Institute, we calculated measures of relative prices and utilization for each metro area. These measures were constructed using a basket of common inpatient, outpatient, and professional health care services and used data on the actual allowed amounts paid for 1.8 billion claims from 2012 to 2016. We then identified approximately 70,000 individuals who moved to and from one of the 112 metro areas during the study period and had continuous health insurance coverage for a year before and after the move. Using an event study approach that compared spending before and after a move between areas with relatively different spending levels, we found that moving to an area with 10% higher spending led to a 4% increase in individual medical spending. Decomposing this effect into separate price and use effects, we found that price and use both played a role in determining this place-specific impact on individual spending. Understanding the sources of geographic variation in health care spending is important to developing policy solutions aimed at bending the health care cost curve. Variation that arises from differences in patient populations across regions illustrate the role of patient demand, while place-specific characteristics suggest the influence of supply-side factors. Each have a different locus of control and so point to different sets of policy levers.