According to a report from Omniscient Health, a healthcare data science, research and consulting firm, physicians are paid 33.6% less for treating Medicare patients than a decade ago thanks to reimbursement cuts coupled by rising practice expenses

When Medicare pays healthcare providers less than commercial insurance does for the same services, it creates several ripple effects in the commercial health insurance market. Here’s a breakdown:

Providers Seek to Make Up the Difference

  • Medicare rates are typically set by the government and often below the actual cost of delivering care, or at least lower than commercial rates.
  • Hospitals and doctors rely on higher payments from commercial insurers (employer-sponsored plans) to cover the shortfall.
  • This is known as cost shifting: charging commercial payers more to make up for Medicare’s lower reimbursements.

Higher Costs for Commercial Insurers

  • When providers charge commercial insurers more, commercial insurance premiums rise to cover these higher payments.
  • Employers and individuals end up facing higher insurance premiums and out-of-pocket costs.

Wider Price Gap Between Medicare & Commercial

  • Over time, the gap between Medicare payments and commercial insurance payments grows.
  • Some hospitals and providers become heavily dependent on commercial payers to stay financially stable.

Market Distortions

  • Providers may prioritize commercially insured patients because they reimburse more generously.
  • Rural or safety-net hospitals with fewer commercially insured patients may struggle financially if they rely mainly on Medicare or Medicaid.

Summary:

When Medicare pays less than commercial insurers:

  • Providers charge commercial payers more → Commercial insurance premiums increase
  • Employers and employees bear the financial burden → Higher healthcare costs overall
  • Market imbalances grow → More strain on safety-net and rural hospitals.

 

Employee Benefit Advisors provides employee benefits, tax-advantaged healthcare, compliance guidance for ACA and Health & Welfare DOL Audits, and PEO Advisory & Consulting Services.