- Hospital prices negotiated by insurers for their commercial plans are two- to three-times higher than Medicare Advantage plan prices at the same location for the same services, according to a new study published in Health Affairs.
- The median commercial-to-MA price ratio in the same hospital was 1.8 for surgical and medical services, 2.4 for imaging, and 2.2 for laboratory tests and emergency department visits. On average, prices for commerical plans were betwen $660 and $707 more expensive than with MA.
- Hospitals that were part of health systems, teaching institutions and large national insurers were associated with higher commercial-to-MA plan price ratios, according to the study. The finding comes as the cost of health insurance in the commercial market has risen over the past 10 years.
The contrasting prices reflect the different financial incentives and regulatory policies between the two markets, the study noted.
Out-of-network prices for MA plans — an increasingly popular arrangement where private insurers contract with the government to manage seniors’ care — are set at 100% of traditional Medicare fee-for-service rates, giving insurers better leverage in their negotiations with hospitals.
Those MA plans face competition from traditional Medicare, so insurers are incentivized to ensure prices don’t rise too high in their MA offerings, according to the study. Hospitals might also be willing to take lower prices from MA plans as long as they receive higher rates from insurers’ commercial plan business.
Insurers take on more risk for their MA plans too, as they’re generally paid a set amount per enrollee to cover care for their beneficiaries. But much of the commercial plan market is dominated by self-funded employers, where companies pay out claims while insurers manage provider networks and handle claim administration.
“All else being equal, insurers may accept higher prices for their commercial plans if it allows them to remain competitive in the MA market, where gross margins are nearly twice as high per enrollee,” the study’s authors wrote.
Large national insurers — including Kaiser Permanente, Aetna, Humana, UnitedHealthcare, Blue Cross Blue Shield/Anthem, Centene and Cigna — had higher price ratios than other payers. The study found major insurers usually reported median price ratios above 2.0 for most or all sevice categories, excluding Centene. That challenges earlier research which found greater insurer market power was associated with lower commercial prices, suggesting insurers’ growing presence in the lucrative MA market may affect their commercial prices.
“In theory, this could attenuate their incentives to negotiate lower prices for their commercial plans if hospitals are otherwise unwilling to agree to be in network for their MA plans,” the study noted.
The study’s findings come as commercial plan prices have risen over the past decade. High commercial prices for healthcare services end up being passed down to employees in lower wages, higher premiums and higher out-of-pocket costs, the Health Affairs study noted. About one-third of insured adults worry about affording their premiums, and 44% worry about paying deductibles, according to a survey by KFF.
The study comes as employers are increasingly disappointed with their insurance. They rated their health plans on overall quality, cost-effectiveness and value with “C” grades in a recent Leapfrog Group report, with just over half saying their plans are committed to reducing unnecessary costs.