Patients with private insurance pay more than three times as much as Medicare patients for hospital care in Wisconsin, a cost shift that ranks fourth-highest in the country, according to a new report.
The study last week from RAND Corp., which highlights concerns about employer health care costs, updates a RAND analysis from 2020, when Wisconsin ranked 10th highest among states.
“It’s no surprise that health care prices are high. It’s striking to see it quantified,” said Cheryl DeMars, CEO of The Alliance, a Fitchburg-based cooperative of 300 employers that purchase medical services collectively. “It’s a call to action for employers and willing providers who share the goal of affordable health care.”
Brian Potter, chief operating officer for the Wisconsin Hospital Association, said the state ranks high in health care quality and has average premiums, meaning it offers good value. The RAND report’s reliance on Medicare rates is unfair because Wisconsin’s Medicare rates are lower than they should be, he said.
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“Our Medicare rates are unfairly low,” which makes what private insurers pay seem disproportionately high, Potter said.
Chris Whaley, the RAND policy researcher who led the study, said most states argue their Medicare rates are too low.
“That’s what I call ‘reverse Lake Wobegon,’ where everyone’s patients are sicker, every hospital’s procedures are much more complex than everyone else’s, and everyone’s underpaid,” Whaley said, referring to the fictional town from Minnesota author Garrison Keillor’s former “A Prairie Home Companion” radio show.
In the new report, privately insured patients nationally paid an average of 224% of the amount Medicare paid to hospitals in 2020. For Wisconsin, it was 307%, behind only South Carolina, West Virginia and Florida.
For Madison hospitals, the figures were 261% at SSM Health St. Mary’s Hospital, 301% at UnityPoint Health-Meriter and 311% at UW Hospital.
Spending on hospital services accounts for about 37% of all health care spending for the privately insured, RAND said.
Health care providers have long said the government programs Medicare and Medicaid pay less what than services cost. With additional losses from uninsured patients and programs such as behavioral health and hospice care, providers say they need to recoup expenses through prices charged to the roughly half of Americans with private insurance. Providers negotiate charges with insurers and offer discounts based on the volume of patients.
A separate analysis last month from the National Academy for State Health Policy claims to account for such factors in computing a “commercial breakeven” point. Using data on shortfalls reported by hospitals on Medicare cost reports, the academy calculated what private insurers should pay to absorb hospital losses.
For Wisconsin, the breakeven point is 138% of the Medicare rate, compared to 127% nationally.
Those figures make the much higher prices being paid by private insurers in the RAND study even more troubling, DeMars said.
A Wisconsin Hospital Association report in 2020, by HC Trends, said Wisconsin ranks higher than the national average in all 30 quality measures evaluated and outperforms the country and most neighboring states in county health rankings. The state’s health systems use between 6% and 10% fewer medical services than other states, the report said. Deductibles are slightly higher in Wisconsin, but premiums and out-of-pocket limits are about the same as the national average.
Potter said the breakeven formula underestimates the markups needed to recover government program losses, in part by not including some key Medicare data. Even if the method was fair, he said, hospitals need some source of reimbursement to account for services that lose or don’t make money, such as offering vaccinations and tests during the COVID-19 pandemic.
“If they really want to pay for things on a breakeven basis, then who is going to pay for those other things?” Potter said.
He said the RAND report includes widely varying levels of claims data for individual hospitals, making its conclusions “pretty problematic.” The 261% figure for St. Mary’s, which has 374 staffed beds, is based on just 13 inpatient stays and 49 outpatient cases. For UW Hospital, with 623 staffed beds, the 311% figure is based on 1,808 inpatient stays and 25,695 outpatient cases.
The information “is not perfect,” acknowledged Whaley, who is scheduled to speak Monday at an Alliance event at Monona Terrace. “But it’s a good place to start as we’re having these important conversations about what we’re paying for and does that align with what we’re getting.”