By Stuart V. Craig, Keith Marzilli Ericson, and Amanda Starc
We examined how prices vary between insurers for the same procedure at the same hospital, using a dataset of all commercial Massachusetts hospital claims. Between provider price variation has been the topic of substantial public policy concern, but it has been hard to observe how prices vary between insurers at the same provider.
The prices an insurer negotiates for a procedure is important because it determines the value consumers get from a health insurance plan, and it determines the total costs a self-insured employer will face.
Our analysis shows that price variation between insurers is about as important as price variation between hospitals. Moreover, for particular procedures, the variations are substantial. We find that the national insurers as a group (Aetna, United Heathcare, and Cigna) are approximately 40% more expensive than Blue Cross Blue Shield for lower-limb MRI at the same hospital. Yet any given procedure can be misleading. We look on average across all inpatient procedures, we find that Blue Cross Blue Shield is about 15-20% more expensive than these national carriers (Aetna/United Healthcare/Cigna).
Choosing a low price instead of a high price major insurer would give average out-of-pocket (OOP) savings of $182 in a high-deductible plan. An individual with more knowledge about the types of services and hospitals they would use could do substantially better. The cost reduction for self-insured employers is larger: $750–$1000 per enrollee.
The type of contract you are in matters too—the same insurer can have multiple prices at any given hospital. Insurers benefit more by negotiating lower prices for plans that are fully insured (where the insurer pays the claims) than for by negotiating lower self-insured employers. Our results imply that a plan for only self-insured enrollees would pay about 8% more—at the same hospital and with the same insurer— than a plan only for fully insured enrollees.