Wide State-Level Variation In Commercial Health Care Prices Suggests Uneven Impact Of Price Regulation

Prices charged for health care services in the commercial insurance market are high and vary widely within and between market areas. As a result, prices have been the focus of much policy debate. We extended the literature on commercial prices by examining state-level price variation in the commercial market, relative to Medicare, for a broader set of states and a wider set of services than had been examined. We assessed the potential impact on provider revenue of setting commercial prices at Medicare rates. Consistent with the existing literature, we found that average commercial prices for inpatient and outpatient facility services were about double Medicare fees, while commercial prices for professional services were about 60 percent higher. Finally, average hospital revenue would fall about 35 percent if commercial prices were limited to Medicare rates, but this would vary widely by state. If Medicaid rates were also increased to match Medicare rates, hospital revenue would likely fall by about 30 percent. Given the potentially large impact, policies to address the market failures that lead to high and variable prices in the commercial insurance sector are needed, but they should be structured to avoid the large disruptions that could occur if there were a very rapid transition to Medicare rates in the commercial market.