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Private insurance plans pay hospitals 241% more than Medicare

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What can employers do to reduce costs?

A new study from RAND Health Care reports that private insurance plans pay hospitals 241 percent of what Medicare would pay for the same service, with wide variation in prices among states.

The study of 1,598 hospitals in 25 states found that employers and health plans could have saved $7 billion by using Medicare’s payment formulas. In Indiana, for example, employers are paying 272 percent of what Medicare pays.

This is because private plans contract with hospitals on a ‘discounted-charge’ basis. This means that insurers agree to a “discount” off of hospital charges. This is different than Medicare, which uses a fee schedule to set the price it pays for each service.

Because hospitals have near carte blanche to set their own prices, paying on a ‘discounted-charge’ basis leaves employers and consumers exposed to inflated hospital prices.

“Employers have opportunities to redesign their health plans to better align hospital prices with the value of care provided,” said Chapin White, the study's lead author and RAND policy researcher. “Employers can exert pressure on their health plans and hospitals to shift from current pricing system to one that is based on a multiple of Medicare or another similar benchmark.”

One step employers can take is to move to a self-funded benefits plan.

In general, self-funded insurance plans provide employers with more insight and control over their costs.

The big benefit of self-insurance is the savings potential. Because employers pay the claims, they reap the benefit of low-claim years. Additionally there are also blended options, where employers can take on less risk and still benefit in low-claim years while minimizing risk in high-claim years.

Bernard Health is an expert in moving groups of all sizes toward self-funding strategies that provide more cost containment opportunities. To learn more, click below to set up a free consultation with a Bernard Health advisor.

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