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Employers pay 254% more for hospital care than Medicare, report says

  • Health Policy
  • |
  • Insurance

By Joseph Burns

One reason health care costs are so high in the United States is that employers pay a whopping 254% more for care in U.S. hospitals than Medicare pays, according to a May report from the RAND Corporation, “Prices Paid to Hospitals by Private Health Plans.”

Not only are hospital prices for employers higher than what Medicare pays, but hospital costs represent the largest share of all health care costs in the United States, according to a report in December from the Centers for Medicare and Medicaid Services, “National Health Expenditures 2022 Highlights.” 

The report showed that of the $4.5 trillion the U.S. spent on health care in 2022, hospitals accounted for 30%, or $1.4 trillion; physician and other clinical services accounted for 20%, or $885 billion; and retail prescription drugs accounted for 9%, or $405.9 billion.

The RAND report is useful for journalists because it offers a variety of story ideas. 

  • First, hospital prices are among the most significant drivers of growth in per-capita spending for the 160 million Americans who have private insurance through an employer or through the Affordable Care Act marketplaces, the report noted. That means that hospitals may be the most significant factor driving up health care costs for American families with private health insurance.
  • Second, the report includes the names of hospitals and hospital systems (meaning hospitals under joint ownership). Those names are usually not allowed when researchers gather such data, RAND noted. Having those names means journalists can compare the prices each hospital in your city or state is charging against the national and statewide averages. You can find the list of hospitals in the “Additional Downloads” section of the report page.
  • Third, for reporters covering hospitals in California, Florida, Georgia, New York, South Carolina, West Virginia and Wisconsin, the report showed that the prices those hospitals charged were among the highest in the nation at more than 300% of what Medicare pays. Conversely, hospital prices in Arkansas, Iowa, Massachusetts, Michigan and Mississippi were under 200% of what Medicare pays. Were the hospitals with lower prices highly efficient or were other factors in play that allowed those hospitals to keep their prices lower than average? A large portion of the variation in hospital prices reflects hospital market power, the researchers explained, adding that little variation was tied to each hospital’s share of patients that Medicare or Medicaid cover.
  • Fourth, federal price-transparency laws require hospitals to post prices for at least 300 shoppable services and that health insurers must post their full set of negotiated rates. Many hospitals have failed to comply with these laws, which leads to these questions: Which hospitals in your market are complying, which are not complying and why? Also, which health insurers are complying with the price-transparency rules, and, if they are complying, are the data from insurers useful to consumers? Health insurers often post data that contains duplicative information that can make file sizes unmanageable, RAND noted.

An important series of reports

A new feature added in this latest report is the price of specialty prescription drugs for patients whose medications are administered in hospitals versus what patients pay when they get those same drugs administered in physician offices, the researchers noted. Weighting each state’s prices equally, RAND researchers found that commercial insurance prices for some drugs administered in hospitals averaged 278% of average sales price, compared with 106% of the average sales price that Medicare paid, RAND said in a press statement.

In a series of reports since 2018, known as the RAND Hospital Price Transparency Study, the researchers have shown that hospital prices, the number of hospitals and insurance claims analyzed has increased, and the state-level average price has remained above 200% of what Medicare pays, the press statement said. At the same time, what employers pay to cover hospital prices has ranged from 247% of Medicare prices in 2018, to 224% in 2020 and to 254% in 2022, RAND noted.

For the report, RAND used data from 2020 to 2022 from more than 4,000 hospitals in 49 states and Washington D.C. Data from hospitals in Maryland was excluded because privately insured residents and Medicare members pay the same price, the report noted.

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