Many people might know that generally the answer is commercial health plans have the most generous reimbursement compared to government plans. However, a key question is how much more do they pay?
Commercial vs. Medicare rates
A January 2022 report by the Congressional Budget Office finds that commercial payers reimburse hospitals at 223% of Medicare rates (240% for outpatient hospital services and 182% for inpatient hospital services).
Commercial payers are also more generous to physicians than Medicare, but on a smaller order of magnitude. Commercial payers reimburse physicians at 129% of Medicare rates overall (144% of Medicare rates for specialty services but only 117% of Medicare rates for primary care services.)
These numbers do vary by state, however, with Massachusetts, New York, and Tennessee giving the most generous reimbursement to hospitals and and Arkansas and Nebraska and Kentucky among the least generous (on an absolute level) for hospitals.
For physicians, Wisconsin, North Dakota and Oregon have the most generous compensation for whereas Alaska, Kentucky and Indiana have the least generous commercial insurance. You do see a lot more variability across states in commercial reimbursement rates than Medicare rates.
Medicaid vs. Medicare rates.
A paper by Zuckerman et al. 2021 found that Medicaid reimbursement was 72% of Medicare rates on average across that nation. That means that if Medicare reimbursement was to a provider was $100, the physician would only get $72 for providing the same service to a Medicaid beneficiary. The 72% estimate is similar to what was reported in previous years of data (see KFF Medicaid to Medicare ratio in 2016 = 0.72)
While many people may know that Medicaid varies significantly from state to state, in some cases, Medicaid reimbursement does actually exceed national Medicare reimbursement rates. This 2017 MACPAC report finds that many states have inpatient Medicaid reimbursement that exceeds Medicare, with DC hospitals getting Medicaid reimbursement that was 150% of Medicare rates; on the other hand, New Hampshire Medicaid reimbursement is only 50% of Medicare rates and Tennessee and West Viriginia Medicaid reimbursement only pays 60% of Medicare rates.
Many people may ask, why don’t commercial plans just lower their rates to Medicare levels? The answer is, if they did that, most providers would go out of business. According to CBO, hospitals make negative margins on Medicare hospitalizations and make up for that with reimbursement from commercial payers.