Private insurers pay significantly more than traditional Medicare rates for hospital services, a new KFF report found. These high prices affect households through higher premiums and cost-sharing obligations, and reduced wages for those with employer-sponsored health coverage.
Private insurance prices for hospital care rose by 30% from April 2019 to April 2026, compared to a 21% increase in Medicare rates. Put differently, private insurance prices grew 47% more quickly than Medicare rates over this seven-year period.
"These patterns are broadly consistent with prior research that finds faster price growth for private insurance than Medicare over time, with some variation across time periods," the report said. "Private plans pay much higher rates than Medicare for hospital services according to prior research, and this analysis suggests that the gap has increased over time."
Private insurance prices for hospital care are the result of negotiations between hospitals and insurers. Increases in private prices over time can reflect changes in the cost of providing care and in the bargaining power of hospitals relative to insurers, among other factors. Hospital markets have become increasingly consolidated, with one or two health systems controlling at least 75% of the market for inpatient hospital care in the large majority of metropolitan areas in 2024, according to KFF analysis, contributing to higher prices.
Large increases in labor and supply expenses during the pandemic likely pushed providers to negotiate for higher prices. However, contracts between hospitals and insurers are only periodically renegotiated and often last for multiple years, meaning there may be a lag before any effects of higher input costs are fully reflected in higher prices.
By contrast, traditional Medicare hospital prices are updated annually by the Centers for Medicare & Medicaid Services, primarily through the Inpatient and Outpatient Prospective Payment Systems. These changes are based on factors and methods described in law and regulation. Medicare updates are based partially on estimates of increases in hospital services input costs, which are affected by overall inflation.
Various other factors may have restrained Medicare price growth during the study period, such as the productivity adjustments enacted under the Affordable Care Act, which reduce the growth in traditional Medicare rates over time under the assumption that hospitals are becoming more efficient at delivering care.
There has been some discussion at both the national and state levels about policies that could rein in hospital prices. One set of policies aims to do so by promoting competition and reducing consolidation in provider markets. A substantial body of evidence shows that hospital market consolidation has contributed to higher prices, with unclear effects on the quality of services provided. Another set of policies would rein in prices more directly, such as by capping the prices that providers can charge.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.