Recent research has shown that there are some major cost differences between public and private insurers. It turns out that the most expensive places to receive medical treatment from Medicare are not the same as places for private insurers. In fact, there is almost zero correlation between where any given city ranks in Medicare spending versus its ranking in private insurance spending. This is even true in cases for people undergoing the exact same medical procedure.
For Medicare, the main factor in determining cost differences in similar communities is the number of tests and treatments that are given. This has largely proven that more treatment is not necessarily better when it comes to Medicare coverage. But for private insurers, the prices set by the hospitals play more of an impact in determining cost. This is likely because unlike private insurers, Medicare can use its authority to set the prices for the hospitals. Meanwhile, private insurers are forced to negotiate with individual hospitals.
This means that private insurers generally pay higher and more varied prices than Medicare. However, this isn’t true for drug prices, where Congress has barred Medicare from determining drug prices. As a result, Medicare often pays more money for drugs than private insurers.
Much like buying groceries, the cost of health care is determined by the price of every item and how much of each item is purchased. While both Medicare and private insurers have started employing policies and to reduce the number of unneeded tests and treatments that are given to patients, private insurers must also work with hospitals to address treatment prices. And when there’s only one hospital in town, it can essentially set whatever prices it wants because of its monopoly status.
Some different methods have been taken to control hospitals overcharging for their services. The state of Maryland puts restrictions on how hospitals can charge insurance companies. And one hospital in California also functions as a health insurer, giving it a stake in the matter. Some people have even proposed expanding Medicare to remove the presence of private insurers entirely.
Regardless, there’s currently a major problem with the healthcare industry. That is the fact that the medical profession is not being rewarded for providing better and higher quality medical care. In fact, in the current system of paying doctors and hospitals for the number of prescriptions they fill and the number of procedures they conduct, they are actually being discouraged from offering the most optimal service possible. Simply put, a hospital makes more money by giving a patient three smaller operations instead of one major procedure.
Needless to say, this is a problem that needs to be fixed. Public and private insurers have started taking measures like “bundled payments”, in which fixed prices are paid for certain medical conditions, and “accountable care” in which doctors and hospitals that provide more efficient care are rewarded. Still, more can be done about this issue. For now, there are simply too many discrepancies between Medicare and private insurers, and hospitals are taking full advantage of the situation.