California Health Care Spending Below National Average
Share This Story

California Health Care Spending Below National Average

Health care is different in California. People use the hospital less, have lower health insurance costs, smoke less and have healthier infants than people in other states. It’s a fascinating combination of economics, politics and social institutions interacting to foster a unique health care environment. Although the cost of health care might seem oppressive for both workers and employers, there is some slight consolation in knowing that health care is somewhat less expensive in California.

Consider the total output of goods and services — the cost of everything from a pound of tomatoes to a new car, a movie ticket or a manicure. If the value of the total output in 2002 was $100, then California would have spent about $10.25 on health care, compared with $11.90 for the United States. The difference between the two was greater in 2002 than in any year since 1980, according to a report on health care spending by the Kaiser Family Foundation.

More Competition, Fewer Hospital Admissions

What’s going on? The California market has been intensely competitive for health plans, as well as for the hospitals and medical groups that contract with them. As a result, California residents spend more on doctors and less on hospitals. Doctors are much more likely to have tests done in their offices than in hospitals, where physicians in some states would send patients for the same tests.

Similarly, California’s hospital admission rate was 96 per 1,000 people in 2002, compared with 119 per 1,000 for the general U.S. population, the Kaiser study found.

The reality is, “apparently a lot of the sick people don’t need to be in the hospital,” Tom Morrison of the Segal Co., a benefits consulting firm, said. In less efficient markets outside of California where there are surplus hospital beds, “doctors and hospitals find a reason to fill the beds,” Morrison said. However, in California “there was aggressive competition,” he said, adding, “All the inefficient hospitals pulled out of the market or disappeared.”

The health insurers, fighting for market share, have negotiated tough deals with doctors and hospitals, forcing them to share in the financial risk of caring for patients. Many firms require “capitated” contracts, under which health insurers pay a fixed fee for patient care. If treatment costs exceed health insurers’ payments, the doctors in the medical group and the hospital will suffer any financial loss.

Impact of Health Insurers Relationship With Hospitals, Physicians

This kind of shared risk “is much more common in California,” said Assembly member Keith Richman (R-Granada Hills), who is a physician. This kind of relationship creates strong pressure to reduce hospital admissions and, if a hospital admission is necessary, to minimize the length of stay.

In California, 33% of health care spending goes to hospitals, compared with 37% for the United States. By contrast, spending for doctors accounted for 39% of outlays in the state, compared with 29% in the United States overall.

California’s HMO tradition also contributes to the state’s unique health care environment. Under HMOs — which Henry Kaiser introduced in California during World War II as an extra benefit to attract shipyard workers despite a national freeze on wages — members receive care through a tightly controlled network of physicians and hospitals.

Even among doctors and hospitals outside the Kaiser system, there has been a spillover effect, and the Kaiser pattern affects health care delivery throughout the state, according to Glenn Melnick, director of the Center for Health Policy and Management at the University of Southern California and a senior consultant at the RAND All medical providers have been “influenced by the Kaiser practice pattern of shorter stays and fewer admissions,” Melnick said.

Most California residents are comfortable with the HMO model, staying within their networks of doctors and hospitals. About 52% of California residents with health insurance belong to HMOs, compared with 24% nationwide. The most common form of health care delivery in the United States is the preferred provider organization (PPO), a less restrictive system with easier access to broader lists of doctors and hospitals. About 54% of U.S. residents belong to PPOs, compared with 29% of California residents.

HMOs, with tighter controls on providers, and less dependence on hospital usage, contribute to the comparative lower cost of health insurance in California. The average monthly premium in California for health insurance for an individual was $258, compared with $282 nationwide. For a family, the average premium was $709 in the state and $756 nationwide.

Better Outcomes in Tobacco Prevention, Infant Health

California has long been a leader in the effort to control and reduce smoking, and the statistics tell the story: the smoking rate in California was 19% in 1992, and dropped to 16% in 2002. Meanwhile, the U.S. rate increased from 22% to 23% over the same time period.

California was one of the first states to ban smoking in restaurants. In addition, the state ran an aggressive anti-smoking media campaign.

Most of the statistics cited in the KFF study are consistent with the history of health policy, but experts continue to discuss and debate figures on the health status of immigrants — many of whom are work in low-wage jobs without health insurance.

In California, immigrants account for 26.5% of California’s population, more than the 11.5% nationwide. Meanwhile, about 18% of the state’s population is uninsured, compared with 15% of the national population.

These numbers would seem to forecast a health disaster for pregnant women and their newborn infants. Without insurance, there isn’t adequate prenatal care. Infants are born underweight and suffer health problems.

However, the percentage of low birthweight infants was 6.3% in California, lower than the national rate of 7.7%. Nobody is sure why the infants are healthier when there are more mothers without health care.

But one theory is the Latino “epidemiological paradox,” which applies to the biggest group of immigrants in the state. The immigrants, including those without health insurance who can pay for prenatal visits to the doctor, “have extremely healthy babies,” David Hayes-Bautista, professor of medicine and director of the University of California-Los Angeles Center for the Study of Latino Health and Culture, said.

Other experts puzzling about the good health of the immigrant newborns said California has a good network of special programs and free clinics where women without health insurance can get no-cost or low-cost prenatal care. But the puzzle remains: low-income mothers without health insurance are having very healthy infants.

California has something important to teach the rest of the country: delivering good care for less money. Keep people out of the hospital whenever you can by doing tests and procedures on an outpatient basis. Let market forces encourage players to share financial risks. And try to figure out why some low-income Latino immigrants are healthy, and see if those cultural factors could be replicated for the rest of the population. California, a trend setter in culture and entertainment, should pave the way in health, too.

More on the Web

Information on the Kaiser Family Foundation study comparing California and the nation is available online.

The Kaiser Family Foundation also operates a Web site featuring health statistics for each of the 50 states.

Related Topics

Health Industry Insight Insurance