Insured North Carolinians spent $97.6 billion on healthcare in 2016 and 2017. That figure comes from a healthcare spending report created by the Healthcare Cost Institute, Duke University and Blue Cross Blue Shield of North Carolina. Patient population, age, service type, and location were the key variables in spending. Let’s break down North Carolina healthcare costs, shall we?
The recent study covered 6.3 million patients insured through four main payer types: original Medicare, Medicare Advantage, Medicaid, and Employer Sponsored Insurance (ESI). The study included inpatient, outpatient, professional (clinician) services, and prescription drugs as service categories.
The average annual spending per patient in North Carolina, across all payer types and service categories, was $8,176. But averages never tell the entire story. We’ll delve deeper into the data, because this study helps us better understand what influences North Carolina healthcare spending.
Medicaid Beneficiaries: Younger and Healthier Overall
The annual spending for Medicaid-insured individuals averaged $5,480 per person—the lowest of the four payer categories. In fact, the North Carolina Medicaid program usually ends the fiscal year under budget. In 2019, Medicaid spending finished $67 million under budget, while in 2017, spending ended up $86 million under budget. Greater enrollment of younger, healthier beneficiaries (beginning in 2017) likely contributed to these outcomes.
Not all Medicaid patients contribute to lower healthcare costs. Medicaid also covers low-income populations of adults, pregnant women (including postpartum care), people with disabilities, refugees, and children. Annual spending per person for elderly adult (65 or older) Medicaid patients was $19,075 — that’s $4,694 higher than Medicare-fee-for-service spending per person for the same age group.
In 2015, the North Carolina General Assembly passed a law initiating the transition of Medicaid from fee-for-service to managed care. This law joined an effort to reduce overall costs by rewarding value-based care and reducing unnecessary services. However, the managed care rollout didn’t begin until late 2019. So while that managed care will likely dampen Medicaid healthcare costs, that program didn’t contribute to this study’s lower costs.
Under-65 Patients Push Medicare Spending Up, Managed Care Keeps It Down
Medicare fee-for-service (MFFS) spending includes services paid for under Part A (hospital insurance), Part B (medical insurance) and Part D (prescription drug coverage). Private insurers offer Medicare Advantage plans, which include the same coverage as Parts A and B, plus additional services not covered by MFFS. Together, Medicare and Medicare Advantage plans had the highest annual per-person spending ($15,670 and $11,199, respectively).
Under MFFS, patients and the Medicare program pay for each service a patient receives. Beneficiaries can also choose their own doctor, hospital or outpatient facility. They don’t need referrals for specialists. In contrast, many Medicare Advantage plans are classified as health maintenance organizations (HMOs), or preferred provider organizations (PPOs). These managed care plans limit costs by restricting their provider networks, offering value-based payment models to providers and requiring approval for specialist visits and certain drugs. The difference between HMOs and MFFS likely contributed to the lower cost of Medicare Advantage patients, compared to fee-for-service.
Adults over age 65 often require more — and more expensive — healthcare (sometimes for costly chronic conditions). But while the Medicare Advantage patients skewed older than those of MFFS, age alone didn’t create the higher MMFS spending. In addition to older adults, Medicare covers younger individuals with disabilities — that is, people who receive social security disability benefits. And younger adults are more likely to enroll in MFFS than Medicare Advantage plans, due to various eligibility criteria. Non-elderly adults covered by Medicare spent an annual average of $19,321 per person ($4,490 more than adults over 65). Meanwhile, non-elderly adults covered by Medicare Advantage plans spent $15,678 ($5,766 more than adults over 65).
Service Use Supports Traditional Assumptions
Unsurprisingly, inpatient services contributed more to spending in populations that included elderly adults (through MFFS, Medicare Advantage, and Medicaid plans). Among these populations, inpatient services for MFFS beneficiaries proved the most expensive, while inpatient services for Medicaid patients cost the least.
The employer-sponsored insurance (ESI) population spent the least on inpatient services—but that group didn’t include adults of age 65, since older adults are less likely to work. ESI patients also used a higher proportion of professional services than both the Medicare and Medicare Advantage groups. It’s possible that ESI-covered patients were more likely to seek care sooner, resulting in fewer hospital visits than the other populations. Those other groups are also more likely to live on fixed incomes.
The Medicaid and ESI groups used similar proportions of professional services (28% and 30% of total services, respectively), but inpatient care still contributed to a larger share of healthcare costs for Medicaid patients. Access to outpatient care options may explain this. ESI individuals used more outpatient (or ambulatory) care, which usually costs less than the same care provided in a hospital.
For various reasons—including issues with provider rate negotiations—Medicaid patients don’t often have the same access to ambulatory care as other populations. This disparity increases the risk that they’ll use the emergency department for services that could have been treated on an outpatient basis. Emergency treatment used like this pushes up healthcare costs. The Medicaid population is also highly complex, both in a clinical and non-clinical sense, which likely means it needs more inpatient services
Prescription Drug Use Follows Familiar Pattern
The proportion of drug costs as a share of total services was greatest in the MFFS and Medicare Advantage populations. That larger proportion underscores the typical understanding that medication use increases with age. The proportion of drug costs out of total spending was nearly equal between MFFS and Medicare Advantage, accounting for 26.4% and 26.7% respectively.
But while their proportion of drug costs was nearly the same, the MFFS costs prove higher ($4,132 per person) that Medicare Advantage ($2,987 per person). We could explain cost difference with the fact that MFFS prescription drug coverage (provided through Medicare Part D) is optional. Medicare patients will pay full price for drugs if they opt out of Part D coverage. In contrast, most Medicare Advantage plans include prescription drug coverage and may have negotiated drug prices. Those features then result in lower drug costs.
Prescription drugs as a percentage of total healthcare costs was also near-equal between the ESI and Medicaid populations (19.4% and 19.9%, respectively.)
Regional Demographics Drive Healthcare Cost Up and Down
In general, healthcare costs more in rural areas than in urban areas. In fact, the three North Carolina counties with the most expensive healthcare costs per person are Jones County, Lenoir County and a tie for third between Bladen and Bertie counties.
Rural patients are a vulnerable population, in general. They tend to be older and sicker. They also tend to have more chronic conditions and participate in riskier behaviors (like smoking and opioid use) than urban patients. At the same time, rural patients are more likely to be lower-income, and underinsured or uninsured. Access issues present yet another factor in healthcare costs, since rural hospitals are closing at a higher rate than urban hospitals. Plus, rural patients are more likely to face transportation barriers. These access issues can lead to lower levels of care which is received. Less care received then drives up costs in the long run, as patient conditions will worsen without the necessary treatment.
Counties with the least expensive healthcare per person include Wake County, Orange County and Mecklenburg County. Given the healthcare features in those places, lower costs make sense. Patients in these heavily-populated counties can access several major health systems, including top-rated teaching hospitals, along with wide networks of both primary care providers and specialists.
Make sure to read the full report if you have lingering questions. Especially if you’re getting older, learning healthcare costs’ trends can inform the plans you choose.