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Private insurers found to control spending better than Medicare

Utilization review and management policies are likely the key reasons for the sharp differences, according to a recent study.

By Chris Silva — Posted Dec. 17, 2010

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Whether health care services are paid for by Medicare or private insurers may result in a significant difference in health spending, according to a recent Health Affairs article. The research found that physicians may be less likely to perform treatments when private insurers are paying the bill.

The study is a follow-up to a 2009 New Yorker article by surgeon and author Atul Gawande, MD, MPH, that showed sharp differences in Medicare's per-capita health care spending between two Texas cities -- McAllen and El Paso. The new research found that the spending differences were significantly diminished when comparing spending between the two cities when private insurers paid the bill for the younger-than-65 population.

Gawande's research concluded that per capita spending for the patients 65 and older in McAllen was 86% higher than in El Paso, primarily because of lower per capita income and increased poverty. The Health Affairs study, published Dec. 7, found that for the younger-than-65 population insured by BlueCross BlueShield of Texas, total spending per member per year in McAllen was just 7% lower than in El Paso.

Blue Cross is the state's largest commercial health insurer. The 65-and-older population is nearly equivalent in the two cities.

Though authors of the study said they cannot definitively explain why variations in health care spending drop off dramatically under private coverage, the authors suggest that private insurers' utilization review and management policies could play a prominent role (link)

"For a number of reasons, insurers generally are reluctant to intrude on medical decision-making," said lead study author Luisa Franzini, PhD, associate professor at the University of Texas Health Science Center at Houston. "But the fact that these utilization management mechanisms exist may prompt some physicians who might otherwise overuse certain services to exercise more restraint."

Osama Mikhail, PhD, of UTHealth and Jonathan Skinner, PhD, of Dartmouth College in Hanover, N.H., worked with Franzini on the study. The researchers used data from Dr. Gawande's study and examined 2008 claims data from Blue Cross.

They speculated that the most probable reason for the disparity between the Medicare and insurer percentages is that payers are better at controlling costs in areas where legitimate medical judgments can be variable -- something the authors called the "gray zone of treatment."

Medicare, on the other hand, exercises very little utilization management, the authors said. Private insurers like BlueCross BlueShield of Texas can be much more assertive about controlling service use. For example, the insurance company encourages members with costly "big ticket" conditions to participate in a disease management program. Other mechanisms encourage physicians to practice evidence-based, cost-effective care. In addition, all elective inpatient admissions must be preauthorized.

Franzini said the researchers are working with Texas Blues plan to examine spending variations across the state.

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