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Getting What We Pay For? Healthcare Spending in NH

Executive Summary

Date: January 22nd, 2013

By many measures, healthcare in New Hampshire is expensive. The state spends more per person on healthcare, and health costs consume a greater share of the state Gross Domestic Product, than the national average of either measure. In addition, the average health insurance premium here is among the highest in the country.

Why is that? New Hampshire does have among the best quality healthcare systems in the country, with strengths within the healthcare infrastructure. But that is not the only reason for high costs here, as other states with similar quality do not see the same spending levels as in New Hampshire.

This paper seeks to understand the reasons behind the relatively high healthcare spending in New Hampshire. We also look specifically at what has driven recent increases in healthcare costs and spending in the state. At a system level, healthcare spending can be described by the following function:

Healthcare Spending = [# of people in a given area] * [illness burden of population]*[# of people using services] * [utilization = f(mix of technology and service use intensity)] * prices=f[wage, capital costs, rents, and administrative costs, including operating margins]

While overly simplified, this model highlights the factors that affect the level of healthcare spending. It also provides policymakers with information on the primary drivers of that spending and identifies areas of needed focus for those interested in slowing the rate of growth in healthcare spending. While estimating the relative contribution of each of these factors remains difficult, in this analysis we identify proxy measures of many of these factors which can help draw attention to those areas where policy changes would likely have the most impact on healthcare spending.

The major findings from this analysis are as follows:

  • Health care spending growth continues to exceed growth in spending on energy and on taxes.
  • There’s a difference between short-term and long-term spending drivers.
  • Growth in health care spending is concentrated in hospitals.
  • Changes in prices are the primary factor driving health care spending, followed by technology and utilization levels.

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