Price Transparency: Private Plans Pay More, A Lot More

Left without cost data, a study shows employers are still struggling to create better health plans.

A new report published by RAND found that during 2022 private insurers paid hospitals on average 254% of what Medicare would have paid for both inpatient and outpatient services.

Looking at the information from over 4000 hospitals in 49 states, the report showed that private health plans were paying more for the same services; despite wide price variation according to state.

While the number of hospitals and insurance claims has grown, the state-level average price remains 200% greater than Medicare prices.

In 2022, prices for inpatient hospital services averaged 255% higher than Medicare prices, outpatient services averaged 289% higher, and other professional services averaged 188% higher. Even prices for common outpatient services swelled, averaging 170% higher than Medicare payments.

The report estimates that about 160 million Americans have private health insurance, and these hospital increases are key growth drivers in per capita spending.

Drug Costs

When the study weighted each state’s prices equally, researchers found that commercial insurance prices for “select administered drugs received in a hospital setting averaged 278% of average sales price, compared with 106% of average sales price paid by Medicare.”

Payers, Prices and Data

This issue of price transparency isn’t new to the health insurance landscape. Employers have often struggled with creating well-structured plans.

Although federal policies require hospitals to post some prices for “shoppable” services and for insurers to post full sets of negotiable rates, many have not complied. Another issue here is that insurer data often contains duplicate information that inflates the file size, making it difficult to use.

“The widely varying prices among hospitals suggests that employers have opportunities to redesign their health plans to better align hospital prices with the value of care provided,” said Brian Briscombe, who currently leads the RAND hospital price transparency project.

“However, price transparency alone will not lead to changes if employers do not or cannot act upon price information.”

Krishna Ramachandran, senior vice president of health transformation and provider adoption at Blue Shield of California, spoke of the efforts that his organization has made to combat these cost pressures. This includes a collaboration amongst the Office of Health Care Affordability, Pharmacy Care Reimagined efforts, and Pay for Value and Data Exchange solutions.

 “We also acknowledge that the healthcare system is getting increasingly complicated, and many parts of this fragmented system are left scrambling to manage a variety of care for all age groups, which this RAND study helps highlight,” Ramachandran said.

Insurers should work with employers to distribute accurate data to combat this issue. We saw a back and forth over this issue in February. Often, employers and plan sponsors said that insurers were refusing to hand over their claims data, which even led to some federal investigations.