Affordable Care Act Exchange Plans Negotiate Lower Hospital Prices Than Commercial Plans, According to New Schaeffer Center Analysis

A new analysis from USC Schaeffer Center researchers finds health plans offered on the insurance exchanges created under the Affordable Care Act (ACA) negotiate hospital prices equivalent to or lower than prices paid by commercial group plans. Both types of plans pay well above Medicare Advantage (MA) plans.

In their analysis, published today in AJMC, ACA exchange plans on average paid 89% of what commercial group plans paid for both inpatient and outpatient procedures. Compared to MA plans, ACA exchange plans paid 143% for inpatient procedures and 243% for outpatient procedures.

The researchers posit that ACA exchange plans may negotiate lower prices compared with commercial group plans because they have a narrow network design, or that hospitals are willing to accept lower rates for ACA exchange plans due to enrollees otherwise being uninsured and unable to pay hospital bills.

“In 2021, 73% of ACA enrollees had a household income at 100% to 250% of the federal poverty level so hospitals may be willing to take a lower reimbursement because it is still better than no reimbursement from uninsured patients,” said Samantha Randall, lead author and project specialist at USC Schaeffer Center.

While prices vary by insurer and hospital, ACA plans consistently negotiate lower hospital prices

The researchers were able to access hospital price data under price transparency laws that went into effect in 2021. They sought price data at 133 hospitals for 25 inpatient services and 56 outpatient services, seeking plan-specific prices for insurers that offered ACA exchange plans along with either commercial or MA plans at the same hospital. Ultimately, the researchers analyzed 19 common inpatient procedures and 13 common outpatient procedures from eight hospitals meeting this inclusion criteria. Among those hospitals, there were 16 hospital-insurer dyads with commercial group plans and 19 hospital-insurer dyads with MA plans.

In every case with the exception of one hospital-insurer dyad, the costs for ACA exchange plans were equal to, or less than, commercial group plans. Comparatively, ACA exchange plans’ prices were more than or equal to MA plans for every inpatient and outpatient service.

Using major joint replacement as an example, the researchers find that while the cost of the inpatient procedure varied, ACA exchange plans consistently negotiated equal to or lower prices than commercial group plans. The negotiated rate for ACA and commercial plans at some hospitals were similar. But, in at least four instances, ACA plans paid at least $6,000 less than the same insurer paid for its commercial plans at the same hospital.

Across hospital-insurer dyads that had ACA, commercial and MA prices available, the average cost for a joint replacement was $20,842 for ACA plans, $24,570 for commercial plans and $13,865 for MA plans.

Among the 22 hospital-insurer dyads, the researchers find 10 negotiate ACA exchange prices as a discount off their commercial group prices, six negotiate as a multiple of their MA prices, and one hospital’s ACA exchange prices are consistently aligned with both commercial group and MA prices, likely negotiated off a common source.

“This strongly suggests that many hospitals negotiate exchange prices as a simple discount off commercial group plan prices or a multiplier of the MA prices,” said Erin Duffy, coauthor and research scientist at USC Schaeffer Center.

Policymakers shouldn’t assume ACA exchange plans and commercial plans pay the same amount

The researchers advise policymakers to evaluate local market trends when considering introducing a public option to compete in their exchanges. If policymakers assume ACA exchange plans and commercial plans pay the same amount, premiums may reflect the higher commercial amount.

The researchers cite Washington state’s public option as an example where policymakers likely based prices off commercial plans, which resulted in public option premiums being 5% higher than average.

“We know there is a lot of variation in healthcare prices,” said Erin Trish, coauthor and co-director of the USC Schaeffer Center. “Our study shows that it is even common for the same insurer to pay a hospital different prices for the same procedure depending on whether the patient has coverage through the exchange or through an employer. It is important not to ignore these differences when making policy decisions.”    

The researchers add that payment differences between ACA and commercial plans impact the newly implemented No Surprises Act. The qualifying payment amount (QPA) is used during arbitration when a surprise bill creates a dispute between insurers and providers. The QPA should be calculated separately for ACA exchange plans and commercial group plans.“We are still fairly early days with these new transparency laws around hospital pricing,” Randall said. “As more hospitals comply, we’ll be able to take deeper dives into contracted rates, compare payment generosity across insurers, and assess broader pricing and competition.”

Sarah Green also coauthored the study. Funding for this study was provided in part from Arnold Ventures.