Study: Indiana ranks sixth in nation in hospital charge disparities

Indiana ranks sixth in the nation for hospital price disparities—ahead of New York, California, Massachusetts and other larger states with higher cost of living—when it comes to what privately insured people pay for care compared to what Medicare would have paid for the same service.

A new study released Friday by the Rand Corp. found that Hoosiers covered by employer health plans paid Indiana hospitals three times—or 304%—of what Medicare would have paid for the same procedures, exceeding the national rate of disparity.

Nationally, in 2018, across all hospital inpatient and outpatient services, employers and private insurers paid 247% of what Medicare would have paid for the same services at the same facilities, the study said. The difference increased from 224% of Medicare in 2016 and 230% in 2017.

The study analyzed hospital claims representing $33.8 billion from 2016 to 2018 at more than 3,000 hospitals in every state but Maryland. Maryland was excluded because the state sets hospital rates.

Florida, Tennessee, Alaska, West Virginia, and South Carolina were the only states with higher disparities than Indiana in the study, with relative prices all above 325% of Medicare.

Medicare typically pays less than private health plans, and hospitals often count on privately insured patients for much of their revenue and profit. But employer groups in recent years have begun to push back, saying they unfairly are charged a higher amount and thus shoulder much of the burden for the nation’s health care.

Researchers said that if private health plans participating in the study had paid hospitals using Medicare’s payment formulas, patients could have saved nearly $20 billion, or about 58% off the collective bill.

It’s the largest study by Rand Corp. on the difference between what hospitals charge Medicare and private health plans, following several earlier studies that examined smaller data sets in fewer states.

About 180 million Americans are covered by employer-provided health insurance, compared to about 44 million under Medicare, which mostly covers people 65 and older.

The Employers Forum of Indiana, which collaborated in the study, underscores the high price of hospital care on employers and their workers.

“And for employers specifically, it has resulted in them having less money available for employee raises, hiring staff, offering robust health benefits, growing their businesses, and contributing to their communities,” said Gloria Sachdev, the group’s president and CEO.

But the Indiana Hospital Association, in a statement, said the Rand study ignored “a major factor driving cost increases,” insurance companies that negotiated the existing contracts and “dictated market dynamics” for years.

“Big insurance was reporting record profits before the pandemic, and they are skyrocketing now,” Brian Tabor, the hospital association president, said in the statement. “Unfortunately, their excess earnings have not been returned as meaningful savings to employers or consumers who are most in need of relief now. Despite the current financial challenges faced by hospitals, we remain dedicated to creating a system that works for everyone.”

The trade association representing health insurance companies, America’s Health Insurance Plans, did not have an immediate comment.

The study also identified the most expensive hospital systems in each state, and measured by the relative prices between Medicare and employer-based coverage. In Indiana, the leader was Parkview Health System in Fort Wayne, which charged 388% compared to Medicare.

The study was funded by the Robert Wood Johnson Foundation and self-funded employers.

CORRECTION: An earlier version of this story incorrectly said that Indiana University Health was the most expensive hospital system in Indiana as measured by the relative prices between Medicare and employer-based coverage. IU Health charged private health plans 333% of what it charged Medicare, which placed it behind Parkview Health System of Fort Wayne, which charged 388%.