Who pays what for healthcare matters – the rift between you, insurance, Medicare and Medicaid.

Our healthcare system – if you can call it that – has many aspects that are just nuts. One of the nuttiest is how we pay health care providers.

The payment levels to healthcare providers differs significantly across private insurance, Medicare and Medicaid. If you have neither, you are expected to pay the most.

One group subsidizes the other. If government decides to lower its payments, your costs and likely premiums will be affected.

The only fair way to pay for health care is within one risk pool using the same reimbursement schedules.

Private Insurance:

• Negotiated Rates: Private insurance companies negotiate payment rates with healthcare providers. ^{These rates can vary widely depending on the insurance plan, the provider’s market power, the geographic location, and the specific services rendered.}   
• Generally Higher: Private insurance generally pays providers the highest rates compared to Medicare and Medicaid. Studies have indicated that private insurers may pay significantly more than Medicare for the same services, especially for hospital services.   
• Market Dynamics: The payment rates are influenced by market dynamics, including the number of providers in an area, the number of insured individuals, and the bargaining leverage of both the insurers and the providers.
• Plan Variations: Different types of private insurance plans (e.g., HMOs, PPOs, POS plans) may have different negotiated rates and cost-sharing arrangements (deductibles, copays, coinsurance) that affect the total payment received by the provider.   

Medicare:

• Fee Schedules: Medicare primarily uses fee schedules to determine how much it will pay providers for specific services. ^{The main fee schedule is the Medicare Physician Fee Schedule (MPFS) which assigns relative value units (RVUs) to thousands of healthcare services.}   
• Nationally Determined Base Rates: The Centers for Medicare & Medicaid Services (CMS) determines the RVUs, which consider the physician’s work, practice expenses, and malpractice insurance costs. ^{These RVUs are then multiplied by a conversion factor (a dollar amount that is updated annually) to establish the national average payment rate.}   
• Geographic Adjustments: Medicare adjusts payment rates based on geographic indices to account for variations in the cost of living and practice costs across different regions.   
• 80/20 Rule: For most Part B services (physician and outpatient services), Medicare typically pays 80% of the allowed amount under the fee schedule, and the beneficiary is responsible for the remaining 20% (coinsurance).   
• Lower Than Private Insurance: Medicare payment rates are generally lower than those of private insurance.

Medicaid:

• State-Specific: Medicaid is a joint federal and state program, and each state has its own Medicaid plan and sets its own provider payment rates within federal guidelines. ¹   1. FAQs Category: Medicare and Medicaid – HHS.gov www.hhs.gov
• Lower Reimbursement: Medicaid generally has the lowest reimbursement rates compared to both private insurance and Medicare. In many states, Medicaid physician payment rates are significantly lower than Medicare rates.   
• Access Concerns: The lower payment rates in Medicaid have raised concerns about physician participation and access to care for Medicaid beneficiaries.
• Varied Payment Models: States use various payment models, including fee-for-service, managed care arrangements (where the state pays a fixed amount per member per month to a managed care organization), and other innovative payment models.   
• Supplemental Payments: Some states offer supplemental payments to certain types of providers, such as hospitals, to help offset the lower base payment rates.   

It’s important to note that these are general trends, and the specific payment levels can vary significantly based on numerous factors at the local, regional, and individual plan/provider levels.Sources and related content