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The Implications of Regional Variations in Medicare—What Does It Mean for Medicare?
The recognition that Medicare spends substantially different amounts of money on seniors in different regions of the United States is neither a new issue nor an unknown issue. The ability to devise appropriate policy responses to these so-called geographic variations in spending has been another matter.
What's the Problem?
Geographic variations in spending are associated with two different problems for Medicare. First, these variations cause payments for managed care plans to differ substantially across the United States. The resulting perceived inequities resulted in the Balanced Budget Act of 1997, legislation that has had its own undesirable consequences. Second, the pressure to restrain Medicare spending, which has been a part of the policy process for the past decade, can be expected to increase dramatically over the coming two decades because of the impending retirement of 77 million baby boomers. To the extent that expenditures in high-spending areas are in part unnecessary or inappropriate, reducing spending in these areas could represent a source of new savings for Medicare.
Before the Balanced Budget Act of 1997, unadjusted Medicare spending at the county level was observed to differ by a factor of 3.5. Actually, this observation showed that …
