Skip to Main Content
What do you need to know during the COVID-19 outbreak? View Resource Center >

» Health plans paid 224 percent of Medicare to hospitals in 2020

May 31, 2022

Employee Benefits, Health Insurance, Healthcare Spending, Research

According to research from RAND Corporation, employer-sponsored health plans paid over twice as much as Medicare to hospitals for the same services at the same sites. This is an annual study performed by RAND, in which the 2018 study found that employers paid 247 percent of Medicare.

Don’t pop the champagne to celebrate that reduction though.

While the 2020 total is lower from the 2018 total, the authors attribute the reduction to an increase in claims from states with prices lower than the average. The authors then look at the median state price which changed very little: 248 percent in 2020 compared to 254 percent in 2018. And among the health plans and hospitals who reported for both studies, 2020 relevant prices actually went up to 252 percent of Medicare versus 247 percent for 2018.

While many groups don’t want to become health economists (that’s our job!), employers do need to understand that they are purchasers of healthcare services. Take it from the study’s lead author, Christopher Whaley, who said, “Employers can use this report to become better-informed purchasers of health benefits.” And added (emphasis mine),

“Because rising health care prices are paid directly from worker wages and other benefits, ignoring health care prices places downward pressure on health care affordability for employees and their families and reduces employee take-home pay.” 

This report drives home the need for transparency in healthcare prices at both the employer and employee levels.

About 160 million Americans have health insurance coverage from an employer or union, and employers frequently rely on an intermediary such as an insurance carrier or TPA to negotiate the prices they pay and manage the plan. Yet there is shockingly little clarity on what they are paying, and this prevents employers from comparing prices and reducing the costs they and their employees pay.

For employees, transparency means they can shop for healthcare services in a meaningful way. If they need knee surgery, an MRI, or they’re planning their pregnancy, they should be able to get an accurate, upfront idea of the cost of services they’ll receive. By not offering this capability, health plans contribute to unaffordable healthcare for many people.

And when we can help employers use this data to compare quality and convenience, we can design networks and plans to move employees from the expensive and low-value providers and systems to the less expensive and high-value providers and hospitals.

If we can send employees to the providers who cost less and have better outcomes, we’ll both reduce costs for the company and improve the health of employees. That’s a pretty good deal.

We read and share these kinds of reports and studies with you because one of our core values is to be visionary and focus on our customers, who are the employees or end-users of the health plans we design. To do our job, we have to put plans that are affordable and deliver quality care. And this report makes clear that employers need to partner with consultants to put these findings to work for themselves and their employees.

Click here to download a copy of the 2020 RAND Study titled “Prices Paid to Hospitals by Private Health Plans”

Posted by in Employee Benefits, Health Insurance, Healthcare Spending, Research