Hospitals charged private insurers more than Medicare

Private health insurance plans, which cover the majority of people in the U.S., paid higher rates to hospitals compared to public plans such as Medicare and Medicaid, according to a recent report from RAND.

In fact, 2017 case mix-adjusted hospital prices were 241% of Medicare prices on average, according to the findings. The study looked at hospital prices of negotiated amounts relative to Medicare reimbursement rates for the same procedures and facilities. For most people enrolled in private healthcare plans, they are employer sponsored.

Cutting hospital rates to Medicare prices from 2015 to 2017 would have saved approximately $7.7 billion in healthcare spending for employers, according to RAND.

Among the privately insured, hospital spending accounts for 44% of total personal healthcare spending, representing a significant opportunity for employers to reduce spending overall. Unfortunately, employers are often in the dark about the prices their plans pay for hospitals for services and care.

Not all states had the same price inflation rates from Medicare prices compared to private insurance. Colorado, Montana, Wisconsin, Maine, Wyoming and Indiana were among the states paying the highest rates, with relative prices in the 250% to 300%-plus range of Medicare rates. By comparison, Michigan, Pennsylvania, New York, and Kentucky had relative prices in the 150% to 200% range of Medicare prices.

Outpatient care was also more costly for private insurance, about 293% of Medicare rates, while inpatient care was 204% of Medicare.

The wide variations on prices reflect an opportunity for employers to “redesign their health benefits to better align hospital prices with the value of care provided,” the report reads. While hospitals only represent one piece of the entire healthcare landscape, it is an important and costly one that can be improved. Employer-sponsored healthcare plans are currently paying much higher prices for the same services at the same facilities as Medicare plans, leaving employers and beneficiaries paying higher costs.

More transparency in this area could potentially help employers to “use health plan network and benefit design to steer their enrollees away from providers with prices that are higher than competing providers,” the report reads.