Private health insurance plans in 2021 paid more than twice what Medicare would have for all those same health care services, says a sweeping new study from Rand Corp., a respected research organization.
Its study, which examines payment rates by private insurers in 25 states to at least one,600 hospitals, shines light right into a black box from the health industry: what hospitals and other medical providers charge. It's one of the primary studies to examine on such a wide level simply how much more privately insured people purchase healthcare.
The finding: a great deal. The main difference varies dramatically across the country. So that as national health expenses climb, this growing gap poses a significant challenge for lawmakers. The Rand data suggests a need for market changes, that could come in the type of changes in industry behavior or government regulation, to be able to bring down hospital prices within the private sector. “If you want to reduce health care spending,” said Christopher Whaley, a Rand economist and something from the paper's two authors, “we have to do something about higher hospital prices.”
Put one other way, if, between 2021 and 2021, hospitals might have charged these health plans exactly the same rates as Medicare, it would have reduced health spending by $7.7 billion.
The national discrepancy is staggering on its own. However the data fluctuated even more when examined on the state-by-state level.
In Indiana, private health plans paid typically more than 3 times what Medicare did. In Michigan, the best of the states studied, the factor is nearer to 1.5 – the end result, the study authors said, of uniquely strong negotiating from the powerful UAW union, historically comprised of autoworkers.
The difference between Medicare and coverage rates matters substantially for the approximately 156 million Americans under age 65 who get insurance through work-sponsored health plans, researchers said. On their behalf, higher hospital prices aren't an abstraction. Those charges ultimately mean individuals paying more for medical services or payments.
That's especially true for the increasing number of individuals who're included in “high-deductible” health plans and also have to pay for more of their own health care costs out-of-pocket, said Paul Ginsburg, director of the USC-Brookings Schaeffer Initiative for Health Policy. He was not associated with this study.
The gap between Medicare and plans – and how it plays out across the nation – underscores a key point in how American health care is priced. Often, it's little related to what it costs hospitals or doctors to provide health care.
“It's about how exactly much they can charge, just how much the market may take,” said Ge Bai, an affiliate professor in the Johns Hopkins University Carey Business School who studies hospital prices but wasn't associated with the research.
The paper's authors claim that publishing this pricing data – that they collected from state databases, health plans and self-insured employers – could empower employers to demand lower prices, effectively correcting the way the market functions.
But, they acknowledged, there is no guarantee that would, in fact, yield better prices.
One concern is that each hospitals or health systems usually have sizable influence in a particular community or state, particularly if they are the area's main health care provider. Another factor: If they are the only facility on the market area to offer a particularly complex service, like neonatal intensive care or specialized cardiac care, they have an upper hand in negotiating the high cost. In those situations, even if a company is made aware that Medicare pays less, it doesn't necessarily be capable of negotiate a cheaper price ..
“Employers and health plans in many cases are actually at the mercy of big, must-have systems. If you cannot legitimately threaten to chop a provider or system from the network, it's game over,” said Chapin White, a Rand policy researcher and Whaley's co-author. “That's when you come up against the bounds of market-based approach.”
It wasn't always this way, said Gerard Anderson, a Johns Hopkins health policy professor and expert in hospital pricing, who was also not associated with the research. Anderson began comparing Medicare prices to that of private insurance in the 1990s, once they paid virtually the same amount for individual services.
Since then, private health plans have forfeit the ability to negotiate at this same level, in part because many hospital systems have merged, giving the hospitals greater leverage. “Most large, self-insured corporations don't have the market power in their communities to take on the hospitals even if they wanted to do so,” Anderson said.
The RAND findings come as Democrats campaigning for 2021 are reopening the care reform debate. Single-payer advocates argue, among other points, that covering everyone via a Medicare-like system could bring affordable prices and increase efficiency to the remaining country, or at least give the government leverage to barter a better price.
That's certainly possible, but it isn't guaranteed. Under single-payer, Anderson said, the challenge would be to make sure Medicare doesn't simply wind up paying more, or that cuts aren't so dramatic that hospitals and doctors close shop.
And there's the political calculus, Ginsburg of Brookings noted. Hospitals, doctors along with other health care industries are all influential lobbies and may successfully defend against any efforts to reduce prices.
“It's think about have regulatory charge of prices. It's another to create them low enough compare unique car features,” he said.
Other strategies, such as a “public option” – which would allow individuals to opt right into a government-provided plan but preserve multiple healthcare payers – may also really make a difference, he said. Lawmakers around the state or federal level could limit what hospitals can charge for certain medical services, as Maryland does.
Some states have taken smaller-scale approaches, too, by tying their payment rates to a number of Medicare, rather than negotiating situational. In Montana, state employees get coverage that pays about 230% of the Medicare rate typically – an arrangement that saved their state more than $15 million over 2 yrs.
For its part, the American Hospital Association, an industry trade group, suggests the importance of decreasing the cost of prescription drugs or reducing overuse, among other things.
Policy fixes are debatable, White said. But the data makes one point clear: From an efficiency standpoint, the current system isn't working.
“There are at this time the key negotiations between health plans and hospitals,” and the system is “dysfunctional,” he said.