Privately insured pay 247% of what Medicare recipients pay to hospitals

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Privately insured pay 247% of what Medicare recipients pay to hospitals

John R. Fischer, Senior Reporter | September 18, 2020
Insurance

A large portion of private health insurance contracting for hospitals is done on a discounted-charge basis, in which insurers pay a percentage of billed charges, whereas Medicare issues a fee schedule that determines the price it will pay for each service and adjusts for inflation, hospital location, the severity of a patient’s illness and other factors.

Whaley suggests that private insurers consider switching to contracting based on a percent of Medicare, or to reference-based pricing, a similar fixed-price arrangement. “They can say either we’re going to use innovative insurance signs to encourage our members to use lower-cost providers. Or we’re going to be maybe more aggressive and tell our higher-price providers, ‘No, we’re not going to pay that price, and if you want our members to go to your hospital, you’re going to have to lower your price.’ Those are all ways employers can try and take a little more control.”

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He specifies, however, that “we also want to recognize that many employers may not have a lot of options to do these types of things. About 70% of the U.S. healthcare market is concentrated and non-competitive. If you’re an employer in one of those markets, you may not have a ton of options to take control yourself. So you may want to look at state or federal policies that may help address some of these market characteristics.”

The report is titled, “Nationwide Evaluation of Health Care Prices Paid by Private Health Plans: Findings from Round 3 of an Employer-Led Transparency Initiative — Prices Paid to Hospitals by Private Health Plans.”

Maryland was excluded from the states examined, due to its long having a system in which the privately insured and Medicare recipients pay the same price.

The study was supported by the Robert Wood Johnson Foundation and participating self-insured employers. It was conducted in collaboration with the Employers’ Forum of Indiana.

The findings are available on the RAND Corporation website.

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