Trends in Price Ratios Between Commercial, Medicare Advantage Plans

August 21, 2023 - Insurers often negotiate hospital prices for their commercial health plans that are up to five times the Medicare Advantage price, a study published in Health Affairs found.

It was already a well-established pattern that commercial plans pay more than Medicare Advantage plans for the same service. However, the Health Affairs study indicated that the insurers might negotiate these starkly different price ratios for their own commercial and Medicare Advantage plans and outlined the outcomes by service type.

The researchers leveraged 2022 hospital price transparency data from 2,434 hospitals compiled by Turquoise Health. The findings may not be broadly generalizable, do not include non-hospital settings, and cannot prove causality. However, it offered insight into the price gaps between two major health insurance markets: Medicare Advantage and the commercial market.

Commercial market prices were consistently higher than Medicare Advantage prices, regardless of the service type.

Generally, the price difference for commercial health plans ranged from 1.8 times to 2.7 times the Medicare Advantage levels. In dollars, commercial plans paid on average $660 to $707 more than their Medicare Advantage counterparts in regression-adjusted analyses.

In 6.5 to 27.2 percent of cases—depending on the service type—commercial health plans paid five times more than Medicare Advantage plans. Laboratory services were most likely to be five times more expensive in commercial plans than in Medicare Advantage plans (27.2 percent), followed by imaging services (23.1 percent).

Median surgery and medicine services saw the biggest price difference. Health insurers negotiated $928 as the median service price in Medicare Advantage plans but, in their commercial health plans, they paid $1,702 for the same services. The commercial-to-Medicare Advantage price ratio was 1.8 in this category.

In imaging, insurers’ Medicare Advantage plans paid a median of $191 for the same service that cost them $490 in their commercial health plans. The commercial-to Medicare Advantage price ratio was 2.4 for imaging services.

Laboratory tests that cost $12 for Medicare Advantage plans were worth $32 for commercial health plans with a commercial-to-Medicare Advantage price ratio of 2.2. The median emergency department visits amounted to $262 in Medicare Advantage but $519 for commercial health plans. Emergency department commercial-to-Medicare Advantage price ratios were 2.2.

The geographical location could also impact the difference between commercial plans and Medicare Advantage plans. States in the southeast tended to have the highest commercial-to-Medicare Advantage price ratio. Meanwhile, states in the lower Pacific northwest and midwest boasted lower ratios.

Additionally, major insurers had bigger price gaps between their Medicare Advantage and commercial plans. Kaiser Permanente led the pack with 0.75 higher price ratios. Aetna came second with a 0.38 higher price ratio, followed by Humana, UnitedHealthcare, BCBS/Anthem, Centene, and Cigna in that order.

On the hospital side, system-affiliated and teaching hospitals had bigger price ratios, while rural hospitals had lower price ratios than nonrural ones. A higher number of hospital beds was associated with bigger price ratios.

Concentration drove price ratios for both payers and providers but with opposite effects. High concentration among insurers contributed to a slightly lower ratio. Meanwhile, concentration among hospitals raised the price ratios slightly. This finding may clarify prior research which showed that hospital market concentration resulted in higher prices, underscoring that this is largely true for commercial plans.

“The large price gap between commercial and MA prices within an insurer reveals the pricing consequences of differing incentives across markets,” the researchers concluded.

“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.”