Hospital prices higher than Medicare Advantage even when negotiated by same insurer

A new report published in the Health Affairs Journal is shedding light on the price differences between commercial plans and Medicare Advantage Plans (MA) for hospitals – when negotiated by the same insurer.

The report, co-authored by Mark Katz Meiselbach, Yang Wang, Ge Bai and Gerald F. Anderson, all of Johns Hopkins University, says that insurers negotiated median hospital prices for commercial plans that were two to three times higher than their MA prices in the same hospital for the same service. The median commercial-to-MA price ratio in the same hospital varied, from 1.8 for surgery and medicine services to 2.2 for laboratory tests and emergency department visits and 2.4 for imaging services.

In total, the data comprised roughly 1.7 million hospital, insurer, plan, setting, and service combinations representing 2,434 total hospitals and 118 total insurers (74 commercial insurers also served MA), allowing for the analysis of 205,966 unique hospital, insurer, setting, and service combinations with at least one commercial price and MA price to compare.

The largest difference was within surgery and medicine, where the median commercial price was $1,702 compared with $928 in MA plans, followed by imaging ($490 versus $191), laboratory tests ($32 versus $12), and ED visits ($519 versus $262). In regression-adjusted analyses, commercial prices were between $660 and $707 more expensive than MA prices, on average (or 2.1 to 2.2 times more expensive).

The report goes on to say that there was substantial variation in the commercial-to-MA price ratio. Commercial and MA prices were exactly the same between 3.7% and 6.6% of the time, depending on the service (4.8% for surgery and medicine, 5.3% for imaging, 6.6% for laboratory tests, and 3.7% for ED visits).

However, in many cases, the ratio substantially exceeded 1.0. Commercial prices were more than five times higher than MA prices 6.5%–27.2% of the time (6.5% of the time for surgery and medicine, 23.1% for imaging, 27.2% for laboratory tests, and 13.8% for ED visits).

There was also substantial variation in the commercial-to-MA price ratio across states. Although the median ratio in several states (the lowest of the six quantiles) was just below or above 1.0, it was substantially above 1.0, or even 2.0, in all other states. The median ratio was highest in Delaware (5.1), South Carolina (4.2), and Washington, D.C. (3.1), and was high in many of the most populous states (including 2.8 in California, 2.5 in Texas, and 2.7 in Florida). The ratio was generally highest in the Southeast and lowest in the Pacific Northwest and Midwest.

All of the major insurers generally had median price ratios above 2.0 for most or all service categories, with the exception of Centene. Kaiser Permanente generally had the highest median ratios, which were as high as 3.7 and 4.1 for imaging and laboratory tests, respectively. Other insurers (that is, not the major national insurers) had median price ratios below 2.0. Median ratios were generally consistent in magnitude within a service category.

The large national insurers had greater price ratios compared with other insurers. Kaiser Permanente had 0.75 higher ratios (SE: 0.03), followed by Aetna (0.38 higher; SE: 0.01), Humana (0.34 higher; SE: 0.01), UnitedHealthcare (0.23 higher; SE: 0.01), BCBS/Anthem (0.17 higher; SE: 0.01), Centene (0.16 higher; SE: 0.02), and Cigna (0.11 higher; SE: 0.01).

Greater insurer market concentration was associated with modestly lower ratios. The report notes that commercial prices were most likely to be exactly equal to MA prices for laboratory tests, at rural and public hospitals, at insurers other than the large national insurers, and in more concentrated insurance markets.

The report concludes that high commercial prices are ultimately passed on to employees and their dependents in the form of lower wages, higher premiums, and higher out-of-pocket expenditures. The large price gap between commercial and MA prices within an insurer reveals the pricing consequences of differing incentives across markets.

Read more: Beyond the numbers: Why price transparency isn’t the whole story

Out-of-network price benchmarking through government regulation, competition with Medicare fee-for-service, and the fact that insurers actually bear risk in the MA market may drive down prices in MA. In contrast, in the commercial market, self-insured employers are largely the ones bearing risk and paying the higher prices.