May 13, 2024 - Health

Hospital prices paid by private insurers vary widely, report finds

A map of the U.S. showing average amounts paid to hospitals by private health insurance, compared to what Medicare would pay. In the U.S. overall, private insurance pays +254% more than what Medicare would. Georgia, Florida, West Virginia, South Carolina and Wisconsin all have averages above +300%. Arkansas has the lowest difference, at +164%.
Data: RAND; Map: Erin Davis/Axios Visuals

Private health insurance on average pays hospitals 2.5 times what Medicare does for the same services, with some states seeing relative prices of more than 3 times greater, according to a new RAND report.

Why it matters: The wide range of prices can't be explained by differences in quality, report authors said.

  • While it's well established that private insurers pay higher rates than Medicare, researchers said the amount of variation suggests employers have an opportunity to negotiate better deals with hospitals, which account for 42% of U.S. health spending for the privately insured.
  • "There's so much variation," principal investigator Brian Briscombe told Axios. "There might be valid reasons why one hospital is more expensive than the other. But there's definitely some room for shopping, shall we say?"

What they found: The analysis, an update to previous reports finding similar variation, examined price data from more than 4,000 hospitals in 2022.

  • Arkansas, Iowa, Massachusetts, Michigan and Mississippi had relative prices under 200% of Medicare reimbursement.
  • California, Florida, Georgia, New York, South Carolina, West Virginia and Wisconsin had relative prices that were above 300% of Medicare.

The report also flags wide ranges of prices within the same market. For instance, it found private insurers paid three times Medicare to one hospital while they only paid two times Medicare at another hospital in the same city with the same quality rating, Briscombe said.

  • It also found greater consolidation was correlated with higher prices, with 18% of the variation in hospital relative prices explained by market share.

The other side: The American Hospital Association strongly disputes the RAND study, saying it "offers a skewed and incomplete picture of hospital spending."

  • "The RAND study only underscores what we already know — that hospitals are chronically underpaid for Medicare services. Anything beyond that should be taken with a healthy measure of skepticism," said Molly Smith, AHA's group vice president for policy, in a statement.
Go deeper