Hospitals are paid about twice as much by commercial health plans compared to Medicare Advantage plans

August 21, 2023

Source: Meiselbach et al Health Affairs August, 2023 LINK

Researchers reported this month in Health Affairs that commercial health plans paid hospitals fees that were often twice that paid by Medicare Advantage plans, which were often offered by the same insurance company. We can see this because of new federal transparency regulations that require hospitals and health plans to disclose their allowable fees. This research is imperfect, as rural, unaffiliated and public hospitals were least likely to disclose their allowable rates.

Hospitals received, on average, reimbursement twice as high from commercial plans compared to Medicare Advantage plans administered by the same carrier. In some instances, the commercial plans paid five times the rate paid by the Medicare Advantage plans. The researchers could not distinguish between fully insured and self-insured commercial plans.

Insurance carriers pay less for Medicare Advantage plans because if they cannot reach a contract with a provider, that provider must accept Medicare rates as payment in full and cannot “balance bill” the member. The authors also point out that Medicare Advantage is fully insured, so every dollar paid comes directly from the insurance plan. In contrast, most (65%) of employers are self-insured, so the dollars paid are from the employer, not from the carrier. Further, Medicare Advantage plans are quite profitable for carriers, which might be reluctant to risk antagonizing hospitals by pushing for lower rates for employer plans.

Implications for employers:

-        Medical carriers often pay much higher rates for hospital care delivered to members of commercial plans compared to the rates paid for Medicare Advantage members.

-        Employers should watch allowable price rates carefully. Reporting which expresses prices paid as a “percentage of Medicare” can help us create a common language to discuss pricing. This is more straightforward to calculate for hospital and physician prices than for ambulatory facility charges.

-        Transparency regulations going forward will allow continued scrutiny of pricing discrepancies.

-        Most developed countries have national fee schedules, so that each individual insurance company does not negotiate unit prices with providers.

Tuesday: USC think tank highlights savings from anti-obesity drugs without considering drug costs

You can find previous posts in the Employer Coverage archive

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