Private Health Plans Pay Hospitals Much Higher Prices in Indiana than in Michigan: Explanations and Implications

Report | May 14, 2020

Employer-sponsored health insurance premiums have been growing much faster than wages or overall inflation. Excess premium growth suppresses wage growth, creates financial hardship for the middle class and reduces government tax revenues. Hospital care spending represents the largest category for the privately insured; the key driver of increasing hospital expenditures has been growth in unit prices.

RAND released a study in 2019 that compared negotiated unit prices paid by private health plans with Medicare administered prices. It revealed that private hospital prices in Indiana are roughly double the Michigan prices, raising three important questions:

  • What structural differences explain the price gap?
  • How do Michigan and Indiana hospitals differ in efficiency and quality?
  • What policy lessons can be drawn?

This study prepared for Altarum by Chapin White with support from the National Institute for Health Care Reform identifies the key difference as the governance of the dominant insurer—Blue Cross Blue Shield of Michigan (BCBSM) in Michigan and Anthem in Indiana. Hospitals in Michigan operate more efficiently, with similar or better quality than those in Indiana. Controlling hospital prices paid by private health plans can increase efficiency without harming quality of care.

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