NCPA - National Center for Policy Analysis

Medicare Pays More For Health Care

December 11, 1995

It is claimed that Medicare only pays 68 percent of what private insurers pay for health care, and that slowing the growth in Medicare payments will result in limiting Medicare patients' access to treatment.

However, in many cases Medicare actually pays more for many health care services than private insurers, according to Medirisk, Inc., a private firm that collects payment information. It surveyed 1,300 managed care plans and more than 450 million current insurance claims and found numerous instances in which managed care paid fees in local markets at or below Medicare's rates, some by as much as 40 percent. For example,

  • In North Carolina, Medicare paid $273 for a colonoscopy, while a negotiated fee was $248.
  • A cataract removal in Oklahoma cost Medicare $1,039, while a negotiated fee was $874.
  • In Florida, a skin biopsy cost Medicare $54, while a negotiated fee was $40.
  • In 10 states plus the District of Columbia, Medirisk found that private plans price some common office visits below Medicare.

Out of 1,000 "highly significant" medical procedures in 40 markets across the country, Medirisk found that 6,250, more than 15 percent, could be purchased at lower rates.

The claim that Medicare payments are lower than the private sector is based on estimates of the Physician Payment Review Commission (PPRC), the federal agency that compares Medicare payments to what the private sector pays. Until 1995, the PPRC only compared Medicare payments to traditional fee-for-service insurance.

But private employers and insurers have been able to slow the rise in health care costs -- and in many cases reduce them -- by negotiating deep discounts for the 50 million people covered by managed care. Furthermore, the sample of HMOs the PPRC uses now is not representative, and the data are three to six years old.

Source: Matthew Miller, "The Medicare Boom," New Republic, December 11, 1995.


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