Analysis of Affordable Health Care
Authors: Huang Tsan-Yao , Togun Adeniyi , Boese Tyler , Dowd Bryan E. 
Published: July 2022

Background:

Lack of affordable health care affects the uninsured, commercially insured, and Medicare beneficiaries. Yet, the wide variation in providers’ prices and practice styles suggests that more affordable care already may be available and data on low value and wasteful care suggest that lower cost care need not come at the expense of better quality. Although price variation has received the most attention in the literature and legislation, total cost of care is a function of both unit prices (fees) and the quantity of services.

Objective:

To partition provider-specific variation in total annual risk-adjusted per capita expenditures on health care services into variation in unit prices (fees) versus quantities of services, and to explore the relationship between low value, avoidable, discretionary, and recommended care to total health expenditures. The analysis is important because both prices and quantities of services can affect affordability and reductions in prices versus quantities have very different effects on providers’ profits.

Setting:

2018 data from the Minnesota State Employees Group Insurance Program (SEGIP) that offers a tiered cost-sharing health insurance benefit design to 130,000 State employees and their dependents (SEGIP “members”).

Exposure:

Each year during open enrollment, SEGIP members choose a primary care clinic (PCC). The PCC can make decisions regarding both unit prices and prescribed services. PCCs are placed in one of four cost-sharing tiers based on the total annual risk-adjusted per capita health expenditures for the SEGIP members who choose their clinic. Members choosing higher cost PCCs face higher deductibles, copayments, and maximum out-of-pocket spending limits.

Measures:

Overall prices and use of inpatient, outpatient hospital, professional, and pharmaceutical services, total and avoidable use of emergency department visits and inpatient admissions, low value care, testing for patients with pneumonia, and recommended preventive care.

Results:

Differences in total risk-adjusted annual per capita health expenditures across the care systems were substantial. Higher cost providers had both higher unit prices and higher use of services. Variation in the quantity of health care services explained more of the variance in total spending than variation in prices. Prices for professional services and use of inpatient, outpatient hospital, and pharmaceutical services, and ambulatory care sensitive admissions, contributed significantly to high total expenditures. Lower cost PCCs in the lowest cost-sharing tier had higher rates of low value care and lower emergency department visits per capita. Neither the number of investigations for patients with pneumonia nor the receipt of recommended mammography screening varied systematically by tier.

Conclusions:

Efforts to identify and expand sources of affordable care, including improved information and incentives for consumers, need to account for variation in both prices and quantities of services. Efforts to encourage more efficient use of health care services by providers need to consider the effect of those efforts on the provider’s internal costs and thus their profits.