Aug 25, 2022 - Health

Health prices rising much faster in the private sector than Medicare

Illustration of a hundred dollar bill puzzle with pieces missing out of the center in the shape of a red cross
Illustration: Sarah Grillo/Axios

Health care prices overall may be lagging inflation, but there's a widening divergence between what's being paid in Medicare and the private sector, according to a new Altarum analysis.

Why it matters: Privately-insured Americans are about to pay more for their health care, if they aren't already.

The big picture: Economy-wide inflation has outpaced health care inflation over the last year — an anomaly, since medical prices typically rise faster.

  • Last month, overall prices were 8.5% higher than in July 2021, but prices for medical care were only 4.8% higher, per KFF.
  • Medical prices have risen by 110.3% since 2000, whereas economy-wide prices have risen by 71%.

Yes, but: July also saw a substantial divergence in what Medicare and the private sector pay for goods and services, which essentially cancelled each other out in the aggregate, according to the Altarum analysis.

  • Medicare prices fell by almost an entire percentage point last month, which dropped them below where they were in January 2021.
  • The drop was due to low or no increases in the reimbursement rates for hospitals and physician services, which are decided by the federal government, and mandatory cuts for Medicare provider payments kicking in this year.

In the private sector, the opposite happened: prices rose last month and reached 5.4% above what they were in January 2021.

  • "We believe many of these increases are occurring as new contracts or updated rates are slowly taking effect, and further expect there may be a noticeable discrete jump in private prices beginning in 2023," the authors write.
  • Hospital rates have risen the most and are 7.2% higher than January 2021. They've risen by nearly a full percentage point in each of the past three months alone.
  • Faster increases within the hospital sector may be a result of greater negotiating power with insurers amid ongoing consolidation, the authors note.

The bottom line: There's already a huge difference between what Medicare and private insurers pay for health services, and that disparity is on track to only grow.

Go deeper