Persistent and growing disparities in the rates paid to health providers by Medicaid, Medicare, and commercial insurance are almost certain to be a key issue for the Biden administration in its efforts to strengthen access to care in Medicaid and in regulations it is slated to release in early 2023. Rates alone do not determine provider participation in Medicaid, but they are a key lever to ensuring access. 1 Medicaid rates are generally well below Medicare rates, which are themselves well below commercial rates. In this post, we compare rates across the market and pose questions relating to access, equity, and costs that are suggested by the data.
In 2019, Medicaid fee-for-service (FFS) payments for physician services were nearly 30 percent below Medicare payment levels, with an even larger differential for primary care physician services. States’ Medicaid payment rates vary widely. Medicaid FFS physician rates for primary care were less than half the Medicare payment rate in Florida, Illinois, Pennsylvania, New York, Rhode Island, and Wisconsin, while Medicaid rates were at or above Medicare in just four states — Alaska, Delaware, Montana, and North Carolina.
Comparisons of hospital rates are more complicated. According to the Medicaid and CHIP Payment and Access Commission (MACPAC), FFS inpatient hospital base payments in Medicaid were 22 percent below comparable Medicare rates. To narrow or close this gap, many states make supplemental payments to some or all hospitals in their state. Accounting for these payments, Medicaid hospital inpatient payments are an average 6 percent above Medicare rates. However, not all states make supplemental payments, and even in states that make them, not all hospitals receive them. In addition, hospitals typically pay the nonfederal share of the cost of these payments through provider taxes or, in the case of public hospitals, intergovernmental transfers. This financing is permissible (subject to federal guardrails), but when hospitals assume these costs, the net value of the payment to the hospital is considerably less.
Comparing Medicaid to Medicare tells only part of the story; it is also useful to look at how Medicaid and Medicare rates stack up against commercial coverage. While no studies directly compare Medicaid to commercial rates, the Medicare to commercial rate comparison underscores how low Medicaid payment rates are relative to the broader market. The Congressional Budget Office found commercial physician rates were 30 percent higher than Medicare rates. For inpatient care, the Kaiser Family Foundation reported commercial rates are nearly 90 percent higher than Medicare.
These data raise important questions that the administration will need to consider as it devises new access standards for Medicaid and seeks to address health equity and rein in health care costs. In addition to examining whether Medicaid rates are too low and commercial insurance rates too high, the administration also should consider:
Federal policymakers will need to consider these and other questions, as well as the overall impact of sharply disparate rates as they write new Medicaid access rules. Differential rates are the result of shifting away from rate regulation. With the notable exception of Maryland, rate regulation has largely disappeared from the health policy landscape. State budget decisions largely drive Medicaid rates; commercial rates are shaped mainly by the relative market power of health plans and providers and fueled by consolidation and the influence of private equity; and Medicare rates are set by a federal formula with inputs established through annual rulemaking. This fragmented approach has led to growing rate differentials and rising costs in the commercial sector, with little systemwide consideration of the implications for access, equity, or cost. Strengthened Medicaid access rules alone won’t solve the problem but can help move us in the right direction.
