Rand: Private insurance pays more than twice what Medicare does

hospital
The Rand Corp. study, which looked at the prices paid by private health plans to 1,600 hospitals across 25 states, also found prices varied widely between different states. (Getty/peterspiro)

The prices paid to U.S. hospitals by private insurers are about 2.4 times higher than the rates Medicare would have paid, according to a new Rand Corp. study.

If employers and health plans participating in the study had paid hospitals using Medicare’s payment formulas, total payments over the 2015-2017 period would have been reduced by $7 billion—a decline of more than 50%.

The study, which looked at the prices paid by private health plans to 1,600 hospitals across 25 states, also found prices varied widely between different states.

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For instance, hospitals in Kentucky, Michigan, New York and Pennsylvania had average prices that were 150% to 200% of what Medicare would have paid in 2017. Meanwhile, hospitals in Colorado, Indiana, Maine, Montana, Wisconsin and Wyoming had average relative prices that were closer to 250% to 300% of what Medicare would have paid that same year.

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Researchers conducted the study by looking at claims data for more than 4 million people that came from about 50 self-insured employers, two state all-payer claims databases and records from health insurance plans that voluntarily participated. The analysis was done in collaboration between Rand and the Employers’ Forum of Indiana, an employer-led healthcare coalition.

“The widely varying prices among hospitals suggests that employers have opportunities to redesign their health plans to better align hospital prices with the value of care provided,” said Chapin White, the study’s lead author and an adjunct senior policy researcher at Rand, in a statement. “Employers can exert pressure on their health plans and hospitals to shift from current pricing system to one that is based on a multiple of Medicare or another similar benchmark.”

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