Until now, it has been difficult, if not impossible, for self-insured U.S. employers to find out the rates that insurers have negotiated with hospitals. That is changing, thanks to federal disclosure rules. Hospitals are already required to post their negotiated rates, and health insurance plans will need to do so beginning in July 2022. Then, by taking three steps, employers can use this information to reap substantial savings.
While it’s well known that some U.S. hospitals are more expensive than others, the rates health insurers actually negotiate with them have been shrouded in secrecy. Indeed, the prices that insurers have negotiated for the very same procedure (such as an MRI) at the same hospital vary dramatically. To save money, self-insured employers that are on the hook for these prices should find an insurer that has negotiated lower procedure prices. It’s not easy, but if they do their research carefully, the savings can be substantial.
A study that Stuart Craig, Amanda Starc, and I recently conducted using health care claims from commercially insured individuals in Massachusetts examined price variation among insurers for the same procedure at the same hospital. We found that how much prices vary, on average, across insurers is roughly the same as how much prices vary, on average, across hospitals. (The standard deviation in average price across insurers is approximately the same as across hospitals.)
For example, Blue Cross Blue Shield of Massachusetts has negotiated prices that are, on average, 15% to 20% higher across all inpatient procedures than the prices of the three major national insurers operating in Massachusetts (Aetna, UnitedHealthcare, and Cigna) at the same hospitals. Choosing an insurer that has negotiated lower prices would save a self-insured employer that bears all the health care costs of its enrollees $750 to $1,000 per enrollee per year.
Moreover, because insurers get relatively better prices for some kinds of services than others, if an employer knows the kind of services your employees are likely to use, the savings can be even greater. For instance, Tufts Health Plan negotiated lower rates for hip and knee replacements than Blue Cross Blue Shield of Massachusetts but had higher negotiated rates for MRIs. Younger employees will tend to use different services than older employees, so a custom analysis of an employer’s enrollee population can be valuable.
Why are these negotiated prices with providers so difficult to observe? In part, because there are so many of them: There is a price for each procedure for each plan at each insurer at each hospital. These prices can all differ.
In addition, the health insurance industry has resisted price disclosure rules, calling these prices “trade secrets.” Indeed, due to those concerns, insurers initially opposed our research team’s access to the Massachusetts state All-Payer Claims Database that details these prices.
Price information is becoming more available due to federal disclosure rules. Hospitals are already required to post their negotiated rates, and health insurance plans will need to do so beginning in July 2022. Sophisticated employers can save money by taking advantage of this data. Rather than relying on employees to price shop when they are trying to get health care, employers should do intensive price shopping upfront when choosing an insurer. Here’s how:
When comparing insurance plans, compare the full costs — not just premiums and administrative fees — but also negotiated provider prices. Aggregate all of those prices based on the hospitals your enrollees will go to and the types of procedures they are likely to get. You will likely benefit from a cost simulation analysis that forecasts what you will actually pay, though hiring consultants to perform this analysis can be costly.
Pay attention to each plan’s network. We know that HMO plans can exclude expensive providers. But, as we found in our study, because these plans can steer enrollees to cheaper providers, they have more bargaining power and can negotiate even lower procedure prices at in-network providers. These negotiated procedure prices vary even from one plan to another offered by the same insurer.
Take into account the higher prices of self-insured plans when deciding whether to offer a self-insured health plan or a fully insured health plan, where the insurer bears the risk. Insurers have more incentive to negotiate lower prices for fully insured plans. We estimate that a plan with only self-insured enrollees will be about 8% more expensive than a plan with only fully insured enrollees.
Analyzing these hidden health procedure prices can take work but save employers money and provide a better deal for their employees.
Copyright 2022 Harvard Business School Publishing Corporation. Distributed by The New York Times Syndicate.