A recent RAND Corp. report has brought to light a disparity in healthcare costs: privately insured patients are paying up to 300% more than Medicare for the same medical services.
This significant discrepancy exposes a critical flaw in the U.S. healthcare system—a pervasive lack of transparency in hospital pricing.
The RAND study, which scrutinizes the payment records from a large number of private health insurance claims across more than 4,000 U.S. hospitals from 2020 to 2022, reveals that employers and private insurance companies forked out an average of 254% more than what Medicare would have paid for the same medical services. In some states like California, Florida, and New York, these figures soared even higher, surpassing 300%.
Brian Briscombe, a healthcare analyst at RAND and one of the authors of the study, emphasized the uniqueness of their approach.
“Calculating 4,000-plus U.S. hospitals’ overall relative prices has never been done before this study, because it’s so difficult to collect the requisite data and to get permissions to publish the hospital and health system names associated with each relative price,” Briscombe explained. “This is real price transparency — naming the hospitals and presenting their overall relative prices in a way that anyone could understand.”
The implications of these findings are profound, especially for the majority of Americans relying on private health insurance.
The data indicates that hospitals are charging private insurers substantially more than Medicare for identical services, which in turn inflates the premiums and out-of-pocket costs for consumers.
The report also serves as a crucial tool for employers, providing them with the necessary information to make more informed decisions regarding healthcare services.
Peter Hussey, director of RAND Health Care, stated, “Hospitals account for the largest share of health care spending in the United States so this report also provides valuable information that may aid policymakers interested in curbing health care costs.”
Despite federal regulations to enhance price transparency, compliance still needs to improve, with only 24.5% of hospitals adhering to the new rules. This lack of transparency prevents effective competition and keeps prices obscured, leaving consumers and insurers in the dark about the true cost of healthcare services.
Dr. Marc Siegel, a clinical professor of medicine, highlighted this issue. “Sometimes these are hidden costs, and sometimes hospitals and other health organizations know they can get away with charging private insurers more while obscuring prices from both the insurer and the patient to help compensate for the shrinking reimbursements from public insurance. At the same time, more out-of-pocket costs are transferred to the consumer in terms of copays and deductibles, as middlemen take the profits,” he said.
The RAND report shines a light on a critical issue that could fuel policy discussions and potential reforms in the healthcare sector. With private insurers lacking the negotiation power of Medicare, the study underscores the urgent need for a system that promotes greater equity and transparency in healthcare pricing.