A new analysis from San Diego’s West Health finds that private insurance companies pay California hospitals about double what Medicare does, with reimbursement at some facilities nearly six-fold higher than is available from government programs.
While this issue might seem like a problem that just affects the companies buying coverage, experts note that this price disparity hits every worker with company-sponsored health coverage right in the paycheck.
After all, noted Tim Lash, West’s chief strategy officer, every dollar that an employer pays toward an employee’s healthcare coverage is a dollar that’s not available for a raise or bonus. And bigger payouts for companies mean bigger monthly health premiums and deductibles.
“Employees need to understand that prices that health insurance companies pay means their income is actually being stifled,” Lash said.
The enormity of the private sector’s health spend, Lash added, cannot be underestimated.
“More than $800 billion is already spent today, and if we keep going on the same trajectory, that number is projected to reach $2 trillion by the year 2040,” Lash said. “I think that the private sector is really starting to wake up and recognize that they’re going to need to do something to get control of this spend.”
Released Monday, the analysis from the West Health Policy Center reviewed public data that hospitals are required to submit to California’s Office of Statewide Health Planning and Development.
California, it turns out, is one of the only states that mandates most hospitals submit yearly breakdowns where their revenues came from in specific-enough categories that healthcare economists can calculate roughly what private insurers pay and compare those amounts to what Medicare pays.
The results indicate that there is a whole lot of variation from hospital to hospital. Ten percent of facilities receive private health insurance payments, researchers found, that average 364 percent of Medicare payments. The average across all hospitals, West researchers found, was that California hospitals received 209 percent more from private insurers than they did for the same services under Medicare which was found to cover only about 79 percent of the cost of providing those services.
The report also lists the top 10 hospitals in the state in terms of price ratio versus Medicare. Two San Diego County facilities, Sharp Memorial Hospital and Sharp Grossmont Hospital, both made the list with private reimbursements that were 2.7 and 2.3 times the revenue obtained from Medicare.
In a statement, Sharp noted that the data used to do the calculations is several years out of date, drawing from 2014 to 2017. Expenses, the company argued, have soared in recent years, pushing the company’s overall margin from 10.5 percent to an anticipated 2.25 percent over the next five years.
Though there have been plenty of studies over the years indicating that private health insurance companies pay much more than Medicare, Ge Bai, a professor of accounting and associate professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health, said that, because the prices that private insurers pay are considered trade secrets, it has been difficult to quantify just how much more private insurers pay.