Employers pay hospitals billions more than Medicare

Employers and private insurance plans in 2020 paid hospitals 224% of what Medicare paid for the same services, with rates for inpatient and outpatient care varying widely from site to site, a new report from RAND finds.

The report found that hospital prices had no significant correlation with hospitals’ share of Medicare and Medicaid patients, which hospitals say factor into private rates. Price did positively correlate with hospital market share.

Hospitals account for about 37% of health spending for the privately insured — and even people who don’t use hospital services foot some of the bill through their premiums.

Annual per-person spending growth for workplace health coverage has exceeded spending growth for government programs in nine of the past 13 years, largely because enrollment and demand for services among the commercially insured has barely changed.

  • The divergence in pricing has been linked to mergers and acquisitions, affiliation agreements and other consolidation that increases hospitals’ leverage.
  • In 2021, the average premium cost of an employer-sponsored family plan was more than $22,000, an increase of 47% from 2011, according to the Kaiser Family Foundation


Prices Paid to Hospitals by Private Health Plans

Employer-sponsored spending comes from employee wages and benefits, employers have a fiduciary responsibility to administer benefits in the interest of participants. The lack of transparency of prices in the health care market limits the ability of employers to knowledgeably develop or implement benefit design decisions. This study uses medical claims data from a large population of privately insured individuals, including hospitals and other facilities from across the United States, and allows an easy comparison of hospital prices using a single metric. An important innovation of this study is that our data use agreements allow reporting on prices paid to hospitals and hospital systems (hospitals under joint ownership) identified by name.

Key Findings

  • Some states (Hawaii, Arkansas, and Washington) had relative prices below 175 percent of Medicare prices, while other states (Florida, West Virginia, and South Carolina) had relative prices that were at or above 310 percent of Medicare prices.
  • In 2020, across all hospital inpatient and outpatient services (including both facility and related professional charges), employers and private insurers paid 224 percent of what Medicare would have paid for the same services at the same facilities.
  • The 224 percent total for 2020 is a reduction from the 247 percent figure reported for 2018 in the previous study owing to an increase in the volume of claims from states with prices below the previous mean price.
  • Among the common data contributors in this round and the previous round, 2020 prices averaged 252 percent of Medicare, which is similar to the 247 percent relative price reported in the previous round for 2018.
  • Prices for common outpatient services performed in ambulatory surgery centers (ASCs) averaged 162 percent of Medicare payments, but if paid using Medicare, payment rates for hospital outpatient departments (HOPDs) would have averaged 117 percent of Medicare.
  • Although relative prices are lower for ASC claims priced according to HOPD rules, HOPD prices are higher than ASC prices.
  • Very little variation in prices is explained by each hospital’s share of patients covered by Medicare or Medicaid; a larger portion of price variation is explained by hospital market power.
  • Prices for COVID-19 hospitalization were similar to prices for overall inpatient admissions and averaged 241 percent of Medicare.


https://www.rand.org/pubs/research_reports/RRA1144-1.html and  https://www.kff.org/report-section/ehbs-2021-summary-of-findings/


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