More money means better health, study finds

Greater spending on medical services does translate to better overall health for Medicare participants, according to a new study from George Mason University and the Urban Institute.

Health Administration and Policy Professor Jack Hadley and his co-authors, Urban Institute researchers Timothy Waidmann, Stephen Zuckerman and Robert Berenson, analyzed data from more than 17,000 Medicare beneficiaries to draw this conclusion.

Previous reports had showed that Medicare spending varies greatly by geographic area, but with little to show for it – the health outcomes for people who live in expensive geographic areas are not necessarily better than those who live in less expensive geographic areas. As a result, policymakers have considered limiting Medicare payments in high-cost areas.

But in their recent study, "Medical Spending and the Health of the Elderly," the research team found that spending more on Medicare medical expenses actually resulted in greater survival and a better overall health score, using an index that measures perceived health and activity limitations.

"The motivation for the study was a large body of research that's been done over the past 10 years that typically has found that there is little or no relationship between how much Medicare spends and the health outcomes of elderly people," Hadley said.

Those studies looked at large populations, typically by geographic location, and used averages to draw their conclusions. "The implication was that higher spending was not contributing to better health," Hadley said.

"While that finding is very persuasive, it doesn't look at individuals and the amount of medical care that they each receive," he said. In its study, the research team used data from the Medicare Current Beneficiary Survey, which collects extensive information from Medicare participants over a three-year span, to determine whether a relationship existed between medical spending and better health.

"The surveys provide much richer information about the person's health condition than one can typically get from insurance claims data," Hadley said.

The results of the study will appear in an upcoming edition of Health Services Research, which is published by the Health Research and Educational Trust and is an official journal of AcademyHealth.

"Over this three-year period – controlling for people's health when they first come into the survey and new diagnoses they may have had over the course of the three years – what was their health like at the end of the observation period? And did that vary with how much medical care they received as individuals?" Hadley asked.

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