RAND Study Quantifies Variation in Healthcare Costs Across the US 

We all know that private health plans reimburse hospitals for services at a higher rate than Medicare, essentially helping to subsidize the public health system. But it’s still startling to see just how much higher those reimbursements are. RAND has been tracking this metric for several years and their latest report says that in 2020 private plans paid hospitals 224% more than they would have if they had been charged at Medicare rates for the same inpatient and outpatient services. There a thin silver lining: This is actually better than in 2018, when private plans paid 247% more. AHA, the hospital industry group, says this drop is due to RAND broadening the analysis to include more claims in 2020, and that the number would drop further if the analysis were more comprehensive.

Still, no one is arguing the basic fact that rates charged to Medicare and private plans are inversely related. Perhaps the most actionable information in this report for employers is the variation in the size of the gap by location – from 310% or more in some states (Florida, West Virginia, and North Carolina) to less than 175% in others (Washington, Alaska and Arkansas). While the variation in health care costs across the country is not news, it’s valuable to have it quantified. If you cover employees in a state where the gap is especially wide, it’s worth taking up the issue with your health plan to see what can be done to bring it more in line.

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