Which States Experienced the Greatest Increases in Medicare Costs?

The state of healthcare spending in the U.S. has experienced fluctuations in recent years.

The quality, accessibility, and cost of hospital care have likely been on the minds of Americans more than ever this year. With the rise of both the coronavirus pandemic and a joblessness crisis as a result of the nationwide shutdown, affordable healthcare is more pertinent than ever.  The federal government has implemented forgiveness policies to improve the flexibility of Medicare regulations, as more individuals are in need of publicly provided healthcare than ever before due to the extenuating circumstances presented by the pandemic.

According to the Commonwealth Fund, as a response to the public health emergency, many of the policy controls put in place to limit fraudulent Medicare spending have been waived. Additionally, treatment in non-traditional settings such as virtually or in patient’s homes ( when not covered by home health care) can be reimbursed through Medicare. Given the limitations on transportation and mobility due to social-distancing regulations, healthcare providers have had to explore alternative options for accessible care.

Healthcare costs have been on the rise since at least 2008, and this increase is likely due to a number of factors. Not only is Medicare enrollment growing year to year, but the prices of healthcare services have also risen — the combination of more beneficiaries combined with a higher cost of care means that spending on Medicare Parts A and B has experienced positive growth over the past ten years. Medicare Part A covers inpatient care, which includes hospital care, skilled nursing facility care, and home healthcare services. Medicare Part B encompasses outpatient services such as medical tests, prevention checks, annual wellness visits, and ambulance services.

A multitude of factors affect state-level healthcare spending in the U.S., including, but not limited to the economy, federal regulations (following the politics of the administration at the time), and the status of overall public health. While the Centers for Medicare & Medicaid Services (CMS) has been in effect since its establishment in 1965, its services have fluctuated with the times.

It is still too soon to tell how much the COVID-19 pandemic will inflate Medicare costs in each state. However, it’s possible to assess decade-long spending trends in each state leading up to the outbreak. Curious to understand recent trends over time in Medicare Part A (hospital insurance) and Part B (medical insurance), especially given the recent changes to Medicare policy, the research team at Insurify looked at CMS’s database to determine which states have experienced the greatest increase in Medicare costs over the past decade.

Insights

• National averages. Across all states between 2008 and 2018, standardized per capita spending increased by 34.94 percent for traditional Medicare. Beneficiary enrollment in Medicare Part A and Part B rose by 20.59 percent. The standardized costs of medical tests per capita additionally increased by a rate of 26.54 percent. The rate of hospital readmissions rose by 2.62 percent.

• A lack of Northeast states. The ten states with the greatest relative increases in Medicare costs per capita over the past decade span the Midwest, West Coast, Southwest, and non-Mainland United States. However, none of the states with these hefty hikes in Medicare costs are located in the Northeast. The ten states with the lowest percent increases in Medicare costs per capita do in fact include more states in the Northeast, such as Maryland ( 9.30 percent ), Rhode Island ( 19.99 percent ), Massachusetts ( 26.41 percent ), New Jersey ( 27.92 percent ), and New Hampshire ( 28.07 percent ).

• Hospital readmission rates correlate significantly with standardized Medicare costs per capita. In both the years 2008 and 2018, hospital readmission rates had a positive, significant association with Medicare costs across the nation. Simply put, as hospital readmissions rose, costs for care increased as well. This association may point to a connection — but not a causational relationship —  between hospital readmission and healthcare expenses. Hospital readmission may imply inconsistent care, or persistent health conditions, which are drivers of healthcare costs.

• Beneficiary growth is a contributing factor, but not the primary cause, of spending growth. The association between beneficiary count and standardized per capita cost in 2008 and 2018 alike is not significant. While Nevada had the highest surge in beneficiary enrollment at a 39.83 percent rate and is within the top ten states with the fastest growth in Medicare costs, the states with the next-highest enrollments increases — New Hampshire, Idaho, and Utah — all had cost expansions that hovered around the national average. However, while beneficiary count and standardized per capita costs were not found to be significantly associated, the percent changes in beneficiary count and Medicare costs between 2008 and 2018 have a significant correlation — the rates of increased enrollment and spending are significantly related. These somewhat counterintuitive findings may imply that enrollment is not the main determinant of Medicare costs, but it has been a primary cause of growth over the past decade.

Methodology

The data science team at Insurify, a site that lets users compare Medicare plans, analyzed data from the Center for Medicare & Medicaid Services’ Public Use File, which provides demographic, spending, utilization, and quality indicators at various geographical levels. To identify the states with the greatest hikes in Medicare costs over time, researchers calculated the percent change in standardized per capita Medicare costs between the years 2008 and 2018 (the most recently available year) for beneficiaries under 65. Similarly, for change in beneficiary enrollment over time, the percent change in the count of Medicare beneficiaries who have both Part A and Part B coverage between 2008 and 2018 was calculated, in addition to the standardized per capita medical testing costs and hospital readmission rates.

Because the data used in this study is from CMS’s most recent reports for 2018, the numbers in the results do not reflect the effects of COVID-19 on Medicare costs. Rather, by examining the preceding trends in Medicare costs before the onset of the coronavirus, we aim to understand the conditions surrounding these policy changes in 2020 and what implications they have for the future of Medicare.

States with the Fastest-Growing Medicare Costs (2008-2018)

10. California

• Percent increase in per capita Medicare costs: 40.15%

• Change in beneficiary enrollment: 8.96%

• Change in per capita standardized medical test costs: 18.65%

• Change in hospital readmissions: 0.97%

The Golden State kicks off our list as the state with the tenth-highest surge in Medicare Parts A & B costs over the past decade. California’s percent increase in per capita Medicare spending rose at a rate 13 percent higher than the national average. The Golden State has a large overall population and a particularly high share of elderly residents — the number of Medicare participants has increased over the past decade by 8.96%, and likely will continue to do so as the population ages, even though California’s relative beneficiary enrollment growth fell below the national average over the past decade.

9. Arizona

• Percent increase in per capita Medicare costs: 40.56%

• Change in beneficiary enrollment: 21.00%

• Change in per capita standardized medical test costs: 29.29%

• Change in hospital readmissions: 2.94%

Between 2008 and 2018, Arizona experienced both a significant increase in per capita Medicare costs for Parts A & B spending and in overall Medicare enrollment. With a rise in Medicare spending 14 percent above the national average, an expansion of testing costs 10 percent above average, and a slightly higher than average rise in enrollment, Arizona’s expenditures on its original Medicare programs have expanded over the past ten years. Hospital readmissions could be a factor in this cost increase, as the state’s readmission rate is 11 percent higher than the nationwide mean.

8. New Mexico

• Percent increase in per capita Medicare costs: 41.14%

• Change in beneficiary enrollment: 27.32%

• Change in per capita standardized medical test costs: 22.79%

• Change in hospital readmissions: -1.94%

The second Southwestern state to make the list, New Mexico has had the eighth-highest surge in Medicare costs per capita over the last ten years. New Mexico’s spending rate is 16 percent higher than the national average, but the state has experienced an enrollment increase only 3 percent higher than the nationwide mean. Additionally, New Mexico’s growth in per capita standardized test costs is 15 percent below the national average, and the state’s hospital readmission rate actually decreased over the past decade. New Mexico’s increase in Medicare costs may therefore be explained by other factors.

7. Georgia

• Percent increase in per capita Medicare costs: 41.40%

• Change in beneficiary enrollment: 25.71%

• Change in per capita standardized medical test costs: 39.51%

• Change in hospital readmissions: 10.91%

Georgia, the seventh state to make the list, is above-average across all the four dimensions. From 2008-2018, Medicare spending, Medicare Parts A & B participation, and Medicare-reimbursed testing costs increased at rates that are 16, 20, and 33 percent faster than the national average, respectively. Georgia also has the fourth-highest percent increase in hospital readmissions in the nation. Georgia is also home to over one million Medicare participants, a figure that has, and is likely to continue, persistently increase over time.

6. Nevada

• Percent increase in per capita Medicare costs: 42.34%

• Change in beneficiary enrollment: 39.83%

• Change in per capita standardized medical test costs: 83.21%

• Change in hospital readmissions: 13.15%

Nevada is sixth in the rankings for its decade-long expansion in Medicare costs, having raised its Medicare spending at a rate that’s 18 percent higher than the national average. Nevada is also the state with the highest overall surge in both beneficiary enrollment and hospital readmissions. Between 2008 and 2018, the former increased at a rate 49 percent greater than the average state while the latter grew a staggering 81 percent above the mean. Given that hospital readmission rates and Medicare costs are significantly correlated, the hike in hospital readmissions in Nevada over the past decade has likely influenced the state’s spending on Medicare.

5. Montana

• Percent increase in per capita Medicare costs: 42.70%

• Change in beneficiary enrollment: 18.93%

• Change in per capita standardized medical test costs: 17.06%

• Change in hospital readmissions: 4.83%

With costs increasing at a 19-percent-above-average rate from 2008-2018, Montana is fifth in the nation for its relative rise in Medicare costs. The Treasure State’s expansions in beneficiary enrollment and test costs are slightly below average, but its hospital readmissions increased at a rate that’s 46 percent above the national average. Montana’s trends follow the overall nationwide pattern of hospital readmissions being significantly associated with Medicare costs per capita.

4. West Virginia

• Percent increase in per capita Medicare costs: 50.22%

• Change in beneficiary enrollment: -2.31%

• Change in per capita standardized medical test costs: 77.71%

• Change in hospital readmissions: 10.37%

West Virginia, the fourth state in the rankings, presents an interesting case in Medicare trends over time. The Mountain State’s relative surge in Medicare costs over time is 31 percent higher than average. Additionally, it has the second-highest percent increase in test costs and the sixth-highest growth in hospital readmissions in the nation. While overall costs and hospital readmissions rose in West Virginia between 2008 and 2018, its actual rate of beneficiary enrollment slightly decreased — while the number of beneficiaries themselves did not decrease, the rate at which enrollment rose did.

3. Alaska

• Percent increase in per capita Medicare costs: 52.77%

• Change in beneficiary enrollment: 14.29%

• Change in per capita standardized medical test costs: 20.08%

• Change in hospital readmissions: 4.98%

The third state on our list takes us all the way up north to a state with vast remote stretches and the lowest population density in the nation. For an incredibly rural state, Alaska increased its per capita Medicare spending at a rate 34 percent above average over the course of a decade. While its relative expansions of both beneficiary enrollment and test costs are lower than the national averages for those statistics, hospital readmissions in Alaska rose at a rate that’s 48 percent above the nationwide mean.

2. South Dakota

• Percent increase in per capita Medicare costs: 52.97%

• Change in beneficiary enrollment: 16.84%

• Change in per capita standardized medical test costs: – 11.94%

• Change in hospital readmissions: 4.70%

South Dakota has experienced the second-highest relative surge in standardized Medicare costs per capita in the United States. Given this statistic, it seems surprising that South Dakota’s percent change in test costs over time decreased by 11.94 percent. Additionally, while South Dakota’s rate of increase in beneficiary enrollment is lower than the national average, its percent change in hospital readmissions exceeds the nationwide mean by 45 percent.

1. Hawaii

• Percent increase in per capita Medicare costs: 71.88%

• Change in beneficiary enrollment: 11.59%

• Change in per capita standardized medical test costs: 3.74%

• Change in hospital readmissions: 6.87%

The top state on the list is Hawaii by a wide margin. The state’s relative growth in Medicare spending per capita is 27 percent higher than South Dakota’s and, more significantly, 52 percent higher than the national average. While Hawaii’s rise in beneficiary enrollment and test costs are below the national averages, the Aloha State experienced a significant increase in its frequency of hospital readmissions. With a rate 38 percent above average, it had the 12th highest percent increase in the nation. This high readmission rate may contribute to Hawaii’s significantly higher per capita Medicare costs compared to other states, given the significant association between hospital readmission and per capita Medicare spending.

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