Dive Brief:
- The Congressional Budget Office analysis compared prices of the 20 most common and costly physicians’ services paid by Aetna, Humana and UnitedHealthcare in 2014 to Medicare’s fee-for-service program and Medicare Advantage (MA).
- The analysis found the prices the three major insurers paid for those 20 services were between 11% and 139% higher than Medicare fee-for-service (FFS) prices, which were more in line with MA.
- Additionally, average commercial prices were as much as three times higher out-of-network than in-network, whereas in MA plans, out-of-network prices were at most 20% higher than in-network prices.
Dive Insight:
While the prices commercial insurers pay for physicians’ services are known to be substantially higher than the prices the federal and state governments pay for the same services through Medicare, this CBO working paper add context to the question of why the disparity is so steep. The research involved 2014 claims data from Aetna, Humana and UnitedHealthcare.
There are three major conclusions in the analysis:
- Commercial prices for the 20 most common and costly physicians’ services can be substantially higher than Medicare FFS prices. For example, an MRI costs more than twice as much under commercial insurance than it would under Medicare FFS.
- Geography plays a big role in boosting commercial prices, whereas providers’ MA plans don’t allow for as much price variation depending on geography. The working paper says the average ratios of commercial prices to Medicare FFS prices in the costliest metros were at least 70% higher than the average price ratios in the least costly areas for all services.
- In-network and out-of-network prices are relatively similar under MA plans, which is largely due to regulations that limit the amount providers can charge for out-of-network services in those plans. The CBO suggests that insurers are able to use those limits on out-of-network charges in their MA plans to negotiate lower in-network prices.
Why so much variation? The working paper suggests the differences in commercial prices and Medicare FFS prices vary by practice size. For example, small practices have little bargaining power with insurers and are forced to accept the prices payers set for services, whereas larger practices, especially physicians who are affiliated with hospitals, can negotiate higher prices by threatening to leave a network.
The working paper has limitations. The data don't reflect all payments made to physicians, nor trends across the industry. And while two of the insurers included in the analysis, UnitedHealth and Humana, make up more than 40 percent of the MA market, the former was sued by the DOJ last spring for inflating prices.