Why are Indiana’s health care costs so high?

Various studies show Indiana’s prices for health care and hospital care as some of the highest in the country. A listener in Angola was curious about the reasoning behind this.

Philip Powell, a business and economics professor at Indiana University, explained higher healthcare costs in the state are due to three main factors.

“First, in terms of health, Hoosiers are not very healthy,” he said. “We need more health care than the average American.”

Powell said that because of this, more Hoosiers are trying to access healthcare services, which raises prices. He explained lack of providers is another factor driving up costs.

“In most of our markets around the state, it's highly concentrated with just a few providers,” he said. “There's not a lot of competition and the more competition you have, typically the lower the prices are.”

The final reason, he added, is Indiana’s lack of innovative healthcare.

“Health care systems in Indiana do not have a lot of the progressive features that lead to cost savings, whether that be population health, whether that be price transparency, so that patients are shopping for health services,” he said.

Earlier this year, the RAND 4.0 study, conducted by a nonprofit public policy research organization, demonstrated high costs — particularly with hospital care — for Hoosiers. The study showed Indiana as the seventh most expensive state in terms of hospital costs.

The study used Medicare prices as a benchmark for measuring costs. Powell said this may not necessarily paint a complete picture.

“If you use the Medicare measurement that RAND did, you also want to put up other qualitative ways of of confirming the hypothesis of how expensive Indiana is,” he said.

Around the time of this study, Indiana legislators also addressed the high costs of healthcare in a letter to the state’s health care providers and insurers. Legislative leaders said they would likely take steps to reduce health care costs in the next session if these providers and insurers did not make an effort to do so.

IU Health, the state’s largest healthcare system, asserted its plans to counter high healthcare costs, including an aim to reach national average prices by January 2025.

Powell explained it will take cooperation from these insurers and providers to push ways that would lower healthcare costs.

“In other states around the country, big employers have just been more aggressive in demanding modernization of healthcare systems,” he said. “And we just haven't seen that same critical mass of demand for innovation in Indiana that other states have seen.”

He added the General Assembly has a lot of power to hold healthcare providers and insurers accountable. Ultimately, he says the solution for this multi-faceted problem will not be simple.

“But, if Indiana can strive to be healthier, and if our healthcare systems can strive to adopt more innovative ways of delivering population health, I know those two initiatives can get us started in reducing the cost,” he said.

Contact reporter Violet at vcomberwilen@wfyi.org or follow her on Twitter at @ComberWilen.

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