Economics, Entitlements

Health spending trends in New England: Healthcare Fact of the Week

In last week’s blog post, I showed that both ambulatory care and health facilities spending, relative to the national average, rose more quickly in Massachusetts during the Romney administration than did such spending in Texas under Governor Rick Perry or in Utah under Governor Jon Huntsman. In this article, I use newly-released figures from the Centers for Medicare and Medicaid Services to show what was happening to state health spending per resident in the New England states surrounding Massachusetts. It turns out that while Romney governed Massachusetts (2003-2007), health spending per resident was rising faster than the national average throughout New England, with the notable exception of Vermont (figure 12.6j).

That said, only New Hampshire outpaced Massachusetts in terms of the rate at which health spending per person outstripped the rate of growth in per capita health spending for the nation as a whole. In short, Governor Romney did not “bend the cost curve” even relative to his peers in the region. The above figures take into account any border-crossing that might otherwise have artificially inflated health spending in Massachusetts relative to much more isolated states such as Utah and Texas. Nevertheless, my earlier observation still holds true: governors have control over some, but not all of their state health expenditures.

But it is important to recognize that differences in economic growth may play an important role in determining the relative rates of spending growth across states. Indeed, when we compare per capita health spending across countries, for example, roughly 90 percent of the differences can be attributed to differences in GDP per capita. Thus, another measure we might use to gauge the relative performance of states relates to the burden of health spending on its citizens. Did the relative burden of health spending rise or fall during the Romney administration? It is easier to answer this question than to figure out what it means. Our rough measure of this burden is calculated using resident health spending as a percentage of gross state product. I again have indexed this burden so you can see how it rises or falls relative to the national average (the national burden rose from 11.6 percent of GDP in 1991 to 14.9 percent by 2009). Note that at the state level, we only track personal healthcare expenditures, i.e., spending on hospitals, physicians, pharmaceuticals, etc., but this excludes spending on Medicaid, Medicare, and private health insurance administrative expenses, as well as spending on public health, medical research, and health-related construction. Once again, the burden of spending rose more quickly in Massachusetts than in the nation overall, although there were other states in the region (Maine, New Hampshire, and Rhode Island) where this burden rose just as quickly.

What conclusions can we draw from this? First, the states that did the most to expand health insurance coverage (Maine and Massachusetts) experienced the greatest increase in health spending per capita. It may seem intuitively obvious that expanded coverage is not self-financing, but there were many reformers who argued the opposite on grounds that the uninsured incur all sorts of avoidable costs due to their delaying and deferring needed care. Such arguments were made even though we have long known that compared to people with full-year private coverage, annual health spending for the full-year uninsured is less than half as high. This figure takes into account all sources of payment, including subsidized care for the uninsured as well as their out-of-pocket spending. Thus, even though the uninsured admittedly have greater use of the ER than those with private insurance and a higher rate of medically avoidable hospital admissions, they nevertheless have lower spending overall. What is apparent from the Massachusetts numbers is that universal coverage is not a free lunch. Expanding coverage inevitably will cost more as the spending of those who previously were uninsured gradually rises towards the average level of those with public or private coverage. Thus, the policy question is whether the benefits of universal coverage are worth these added costs. Vermont might be viewed as a counter-example, except that the state’s Health Care Affordability Act did not take effect until 2007. Thus, the state’s relative deceleration in health spending actually began several years before this law took effect and the spending curve flattened out post-2007. Even if relative spending had declined slightly post-2007, remember that all of these trends are relative to the national average: a slightly declining line merely means that health spending grew less slowly than elsewhere, not that it actually declined.

Second, rising incomes cannot explain the relative rise in health spending in Massachusetts. The figures showing a rising burden imply that the state’s health spending grew faster than the state’s economy. But in fairness to Governor Romney, the health burden in Massachusetts had been rising for many years prior to his coming into office. At best he failed to slow that growth. On the other hand, the relative burden declined post-2007, which some might want to attribute to “Romneycare.” As I explain in a forthcoming piece in The American next week, there really is no good way of determining whether this decline was related to Romneycare or the recession (or some combination).

Third, these figures reinforce my earlier observations about health services regulation. Having spent much of the past decade looking at such regulations in detail, I do not believe it is accidental that the six states shown generally rank among the most regulated states in the country (MA=49, RI=47, VT=44, CT=36, ME=35, NH=4, where 50 denotes the most regulated state in the country). While a definitive conclusion would require a careful analysis of time series data that relate changes in health services regulation to changes in health spending, this strong—albeit imperfect—correlation between health regulation and health spending seems unlikely to be purely coincidental.

Healthcare spending may not be the most important issue in the 2012 election. But whoever is elected president in 2012 will have to begin addressing the very serious issue of healthcare entitlements, as these commitments are the ones making the biggest contribution to the fiscal tsunami we will face if we take no action. Mitt Romney assuredly expanded coverage in his state, but the result was faster-than-average growth in the state’s health expenditures and faster-than-average growth in the burden of health spending relative to the state’s income. All indications are that the Affordable Care Act will play out in similar fashion. Massachusetts voters might have viewed this as a fair trade, but voters will have to decide whether the incremental gains in coverage under the ACA are worth the multitude of adverse effects being left in its wake.

Christopher J. Conover is a research scholar at Duke University’s Center for Health Policy and Inequalities Research and an adjunct scholar at AEI. The charts shown are from his new book American Health Economy Illustrated, to be released in January 2012 by AEI Press. See PowerPoint versions of Figure 12.6j and Figure 12.6k and Excel spreadsheet containing indexes for a) health spending per resident; b) Medicaid spending per resident; c) resident health spending as a percentage of gross state product, and d) resident health spending by type of service for data, sources, and methods.

3 thoughts on “Health spending trends in New England: Healthcare Fact of the Week

    • There’s no inconsistency. The growth in health spending in Massachusetts outstripped the national average both before and after “Romneycare”–a fact demonstrated in my chart and David Frum’s figures. I myself never claimed the Massachusetts health plan caused spending to “skyrocket” (Frum’s term), merely that it did not bend the cost curve. The rate of increase in health spending in MA continues to go up faster than the national average even after “reform.”

      As a practical matter, it is quite difficult to distinguish the effects of the recession from the effects of “Romneycare” in the 2007-2009 period. So in general, David Frum gives more credit to Romneycare than I myself would.

      That said, in assessing gubernatorial performance, it seems a little odd to ignore the fact that health spending was going up MUCH faster than the national average while Governor Romney was in office but then give him great credit for the purported slowdown in spending after he left office. If the argument is that governors really can’t do that much about health spending anyway, then it renders all these cross-state comparisons moot. One can’t (or shouldn’t) cherry-pick the data to highlight a comparison that looks favorable and ignore ones that are not.

      The best analogy I can give is this. Imagine someone who is very obese getting a diet pill. Prior to taking the pill, this individual’s weight relative to the national average was rising 27% every 2 years. After the pill, their weight is still rising relative to the national average, but “only” 5% faster. The individual taking the diet pill is still gaining weight faster than those who don’t. Would you take that pill?

      Until Mr. Frum can explain what it is about Massachusetts health care that should lead us to “expect” 27% faster-than-average growth in its spending, pointing to only 5% faster-than-average growth seems problematic. Especially since the one thing we know for certain happened between 2004-2006 and 2007-2009: Governor Romney left office! If we give Governor Romney “credit” for the ballooning of MA health spending during his administration, then his apparent ability to lower this excess to “only” 5% seems far less impressive.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>