Policy Proposals Based on Medicare Rates Could Have Dramatically Different Geographic Impacts

WASHINGTON D.C. — The average commercial cost of medical professional services compared to the rate Medicare pays is 122% nationally, and ranges from a low of 98% in Alabama to a high of 188% in Wisconsin, according to a new report from the Health Care Cost Institute (HCCI). In addition to this cross-state variation, HCCI also found that average local commercial prices compared to national Medicare rates vary dramatically within states.

"There are multiple national and state policy proposals aimed at reducing health costs or addressing surprise billing that use Medicare rates as a benchmark," said Niall Brennan, president and CEO of HCCI. "This new research shows that the potential impacts of policy proposals tied to Medicare rates would vary widely across states and metro areas."

HCCI researchers analyzed a sample of nearly 210 million claims for individuals who had employer-sponsored insurance (ESI) coverage in 2017 to measure the average commercial prices paid for a standard basket of approximately 500 professional services, such as doctors visits, venipuncture, and vaccine administration, across more than 250 metro areas in 48 U.S. states. Combined, professional services represent about 34% of overall spending. Nationwide, commercial prices for professional services averaged 122% of Medicare rates.

The relationship between commercial prices and Medicare prices varied widely across states, ranging from average prices 2% lower than Medicare rates in Alabama to average prices almost twice Medicare rates in Wisconsin. Seven states' average prices were above 150% of Medicare rates, while eleven states' average prices were within 10% of Medicare rates.

The ratio between commercial prices and Medicare rates varied not only across states and metro areas – but also across metro areas in the same state. For example, in California, commercial prices averaged 94% of Medicare in Bakersfield but 178% of Medicare in Santa Cruz. This variation both across and within states suggests that policies benchmarking commercial prices to Medicare rates could have significantly different impacts across geographies.

While no state's average commercial prices exceeded 200% of Medicare, some localities did: the five metro areas with prices above that threshold are all located at least partially within Wisconsin: LaCrosse-Onalaska, Eau Claire, Marinette, Green Bay, and Sheboygan. Conversely, commercial prices were below 100% of Medicare rates in 23 metro areas, as well as one state: Alabama.

The HCCI report was made possible with the generous support of Arnold Ventures.