State Efforts to Lower Health Care Prices Paid by Private Insurers

Since the mid-1990s, the differential between what public and private health insurers pay for hospital and physician services has widened considerably. While Medicare establishes rates administratively, private insurers operate within the market to set prices; in part because of increasing consolidation of hospitals, these negotiated private rates have risen faster than Medicare rates over time. For example, between 1996 and 2001, private prices for inpatient hospital stays were 10% greater than Medicare rates, but by 2012 this had increased to 75%.¹ These high and rising prices have forced employers to devote a larger share of compensation to health benefits, which constricts wage growth, and to pass on costs to employees in the form of higher premiums and cost sharing.