5 Takeaways from Private Health Plans Paying More for Hospital Care

The average is 224% above Medicare rates.

While it's not a surprise that private payers incur higher pricing for hospital services, the percentage above average may be—224% of Medicare payment.

The figure comes from a new RAND Corporation report based on 2020 data that continues research from 2018 when those averages were slightly lower. The inflated pricing also applies to what commercial insurers and self-insured employers pay for physician fees and ambulatory surgery center (ASC) care.

In a press release for the report, lead author and RAND policy researcher Christopher Whaley encouraged stakeholders to use the data to "become better-informed purchasers of health benefits" and to look "for strategies to curb health care spending."

Among the study's highlights:

• Employers and plans pay more for hospital care. The 2020 national hospital average of 224% declined from the 222% paid in 2018 and the 235% paid in 2019.
   
• ASC and professional service rates are higher, too. Compared to Medicare, plans and employers pay on average 163% more for physician fees and 162% for ASC outpatient services.
   
• Pricing varied significantly across states. Florida, West Virginia, and South Carolina log the highest prices (310% of Medicare) and exceed the study's average (310%). Hawaii, Arkansas, and Washington come in below the average, at 175%.
   
• Spending is in the billions. In 2020, private purchasers paid more than $80 billion: $78.8 billion for hospital-based care and $2.0 billion for ASC care.
   
• Facility-specific pricing is included. The RAND report is unique in that costs at individual hospitals and health systems is included with the overall, state-based, and facility-specific pricing averages. This is a boon for purchasers, who generally lack access to this information.

RAND's 2020 expanded research includes 4,000-plus U.S. hospitals, including short-stay facilities, and a near-equal number of ASCs—a first-time inclusion in RAND's ongoing research. RAND sourced data from self-insured employers, all-payer claims in 11 states, and participating health plans.

The Robert Wood Johnson Foundation provided support for the study, with the Employers' Forum of Indiana also collaborating.